- Reversal. "Sentiment has turned. While confidence had still dominated until recently, growth concerns are now spreading. The catalyst was poor US economic numbers combined with the expected retarding effects of the European-wide austerity policy measures. Some economists even expect the economy to slide back into recession."
- Assessment. "Just as we did not share the previous euphoria, we do not subscribe to the fears of the double-dip scenario. True, the leading indicators around the globe are heading south, while the impulses from the inventory cycle and the national fiscal spending programs are expiring and will soon become a drag. The pace of growth will therefore moderate, but
probably nothing more than that."
- US. "The worst recession since WW II in the aftermath of the Lehman collapse alone argues against a double-dip recession. Employment and fixed capital investment fell so low that a renewed, sustained contraction is scarcely possible. Furthermore, the administration is making the economy its top priority as it faces mid-term congressional elections in November.
GDP growth should not fall below an annual rate of 2%."
- Europe. "EMU-wide austerity measures will shave 0.6-0.7 of a percentage point off GDP growth in 2011. This, however, will be matched by the positive impulses from this year's EUR depreciation. Nevertheless, economic growth should moderate over the next few quarters to an annual rate of 1%-1¼%. The pendulum is swinging back even more pronounced in Germany. This is suggested by the new orders-to-stock ratio, one of the best global leading indicators. But as in the US, the downside risks in Europe cannot be ignored."
Unicredit Friday Notes 20100709
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