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This month’s survey results suggest
that the Euro Area economy will lag behind the expected recovery in Asia.
Although growth will return in 2010, it will be slow, and the picture for
2011 is not much brighter. If the panel is correct, this will be the slowest
rebound from a recession that we can remember. So far, analysts remain
unconvinced that the financial sector’s woes, and the consequent debilitating
effect on European economies, are behind us. Personally, we believe that
economic growth will be stronger than expected in 2010 and, in particular, in
2011. But this view rests more on the knowledge that previous recoveries have
always been under-predicted than on any detailed analysis of the mechanics of
how that will come about. But consider the fact that economic growth in China
is now back to its pre-recession rate of close to 10% pa, or the fact that
current short term interest rate levels are so low that, if you can get a
loan and lock that rate in, the cost of funds has never been so low.
Certainly, the main headwinds against a recovery include the view that the
end of various stimulus policies aimed at specific industries (cars, housing
etc) will fade in
2010. Moreover, given the extremely poor state of public
finances in most regional economies, fiscal stimulus will give way to fiscal
tightening from 2011 onwards, as governments strain to bring public finance
back under control. But developed economies have consistently shown
themselves to be resilient to these challenges. There have been many
recessions in the past half-century, and during the recovery from every single
one, the press lament has been ‘yes, but where are the jobs’. This is a
function of the fact that cycles in labour markets have always followed the
overall economic cycle with a lag. Just as the unemployment rate is a late
indicator of the existence of a recession (i.e. unemployment starts to rise
only after the economy has clearly turned down), it is also a late indicator
of the existence of a recovery. In our experience (or anybody else’s), there
has never been a recovery during which job creation did not lag the pick-up
in economic output (and during which, by the same token, media comment was
not similarly focused on the negative). For similar reasons, there have been
few, if any, recoveries during which public finances have not improved much
faster than most analysts expected. Job creation always follows about 6-12
months after the recovery has actually started. This is not a comment on a
social or policy issue, it is just a function of the
way economies work. If you would like to speak to one of
the partners of MJEconomics about the political and/or economic situation in
a country that you are planning to do business with, please send an enquiry
via our web page, or directly. We have considerable experience of following
political and economic developments in a wide range of countries, from the
Middle East, the Far East, South America, Europe, Africa or North America.
Unlike the large consultancy firms, we are available for short term
engagements, at low cost, to our existing customers. Having experienced the
worst of the current economic cycle, can you afford to ignore the advice of
those that can guide you through the upturn? [Read more … ]. MJEconomics is a UK-based partnership,
set up with the intention of providing economic forecasts and advisory
analysis via e-mail and over the web to a broad spectrum of corporate
planners, investment analysts, researchers and marketing executives. Along
with consultancy services, MJEconomics also publishes a series of newsletters
based on surveys of macroeconomic forecasts for a number of
regions and economies. |