P. 1
Ghiotti, Daniele - 2010 07 23 - Global Economy - This Recovery Crawls, It Doesn't Leap

Ghiotti, Daniele - 2010 07 23 - Global Economy - This Recovery Crawls, It Doesn't Leap

|Views: 7|Likes:
Published by Marc Meyer

More info:

Published by: Marc Meyer on Jun 07, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

06/07/2011

pdf

text

original

Daniel Kalt, economist, UBS AG Thomas Berner, CFA, economist, thomas.berner@ubs.

com, +1 212 713 4108, UBS FS Dominic Schnider, analyst, UBS AG Constantin Vayenas, analyst, UBS AG

Wealth Management Research

22 July 2010

Global economy
This recovery crawls, it doesn't leap
s The global economy is slowly shifting gears. It is moving from a

Previous reports
s 13 July: Global financial markets: Monthly

government-supported recovery to one that is driven by the private sector.
s Despite uncertainties over the sovereign debt crisis in Europe and some

compass - double-dip fears are overdone
s 9 July: Eurozone economics: The future of the

anemic leading indicators recently, we expect the moderate recovery to continue. After some leading economic indicators disappointed, market participants started to worry that the global economy might be backsliding, descending into the second act of a "double-dip" recession. We do not share this view. The recovery in developed markets' economic activity over the last two or three quarters reflects a rebound in global trade, the end of the de-stocking cycle and, not least, the massive fiscal and monetary policy support. The incremental growth contribution from global trade and the inventory cycle will clearly fade over time. Meanwhile, the austerity measures announced in Europe and elsewhere will soon reverse fiscal policy's positive contribution. We believe these challenges to global growth will be counterbalanced by emerging markets growth, which is still quite strong, and by the very loose monetary policies in most developed economies. We expect these policies to persist for some time. Our base-case scenario of moderate recovery now hinges on private final demand – seen in consumer spending and business investment. These factors need to become the key drivers of economic growth now, in our view. We think that the latest improvements in labor market conditions and consumer and business sentiment will not simply vanish in the coming quarters. We therefore stick to our sub-par recovery case while admitting that a "double-dip" remains a risk that will be closely monitored by market participants.

euro in jeopardy
s 8

June: Eurozone economics: Short-lived recovery?

s 7 June: Fault lines: Double-dip recession or

smooth recovery?

This report has been prepared by UBS AG and UBS Financial Services Inc. (UBS FS).

Please see important disclaimers and disclosures that begin on page 5.

UBS WMR US employment is growing again Change in non-farm payrolls and unemployment rate Source: ThomsonReuters EcoWin. private sector demand has been reignited. it rarely breaks down in the early stages of an expansion. will likely show a solid pickup in economic activity in the region. sparked by monetary and fiscal policy. As a result. we do not expect this tapering-off to be a big burden on growth in 2011. UBS WMR Global economy . The second and third quarters. starting in mid-2011. Combined with likely tax increases. the growth in inflation-adjusted wages and salaries has accelerated in the past few months. Portugal and Ireland to implement painful austerity programs. to be published on 23 July. the sovereign debt crisis has forced peripheral countries such as Greece. However. we think that the positive feedback loop between consumption. Historically. UBS WMR EMU leading indicator signals pickup in growth EMU composite leading indicator and real GDP growth Source: ThomsonReuters EcoWin. As long as monetary policy does not shift too rapidly from expansive to restrictive. US household savings rate has peaked Net wealth to income ratio and savings rate Source: ThomsonReuters EcoWin. it pushed businesses to start hiring again this year. while we expect government spending growth to moderate further. employment and labor income will prove to be strong enough to avoid a double-dip recession. the US economy will be able to withstand such an erosion without triggering a double-dip recession. will restore confidence in the sector and unlock interbank lending markets in peripheral economies. indicating that the correction in savings behavior has likely run its course. as well as from lower interest rates and falling inflation. spurring further hiring in the positive feedback loop. in our view. Private consumption has been positive for eight months in a row. In our view. The US consumer has benefited from a rebound in net wealth. implying growing support for US consumer spending. The savings rate has been stable at around 3. As consumption recovered.5% since last July. Against this backdrop. Rising consumption kicks off a virtuous circle. Productivity of existing workforces was already very high and the additional demand could only be satisfied by adding new workers. once such a positive feedback loop has been triggered. We expect the Fed to raise rates only gradually. Furthermore. we think a double-dip recession is rather unlikely. which has supported real purchasing power. fiscal policy could shave off about 1% of real GDP growth in 2011.2 . with GDP growth at only 0.2% in 4Q09 and 1Q10.UBS Wealth Management Research 22 July 2010 Global economy US private sector’s virtuous cycle to carry the economy In the US. We expect improving labor market conditions in Germany to render the recovery there as more self-sustaining and less dependent on government support. Spain's banking sector remains a risk and it is still unclear whether the European bank stress tests. however. Europe: Fiscal austerity versus ultra-loose monetary policy The Eurozone has been the laggard in the recovery story.

we expect nothing to change: emerging Asia will lead the tightening cycle from a global perspective and not lag behind it. year-on-year growth could hover around 8%. UBS WMR Asia: Decelerating growth China has just released second-quarter GDP figures showing that growth moderated to 10. we expect to see significant divergence in the economic performance of different Eurozone member countries. Overall. if required. Part of the slowdown is the consequence of negative base effects compared to the strong growth readings at the end of 2009. We think this should support their currencies. Measures to cool the pace of credit expansion as well as the housing market should curb incremental investments. which already has a strong footing in global export markets.3 . Real GDP growth across regions in % y/y Source: ThomsonReuters EcoWin.UBS Wealth Management Research 22 July 2010 Global economy Against this backdrop. Germany. a weaker EUR and continued loose monetary policy. well ahead of the ECB. Hence. They will likely suffer a sustained period of near-stagnation and high unemployment. Large countries with a strong focus on domestic consumption should be less affected by this soft patch.3% year-on–year. In the pecking order. we think Asia is still well positioned. In the second half of 2010. while sub-trend growth is likely to be short-lived. UBS WMR Global economy . Smaller non-EMU economies such as Switzerland. the low overall leverage ratio of most countries in the region allows policymakers to stimulate the economy. The deceleration in growth in other Asian economies will also be watched closely. it will be difficult for investors to determine what proportion of the slippage is simply related to base effects and what reflects deteriorating fundamentals. the peripheral Eurozone economies will have a hard time achieving decent growth. We think Indonesia and India should do relatively well. we could see some previously unexpected difficulties. Given these circumstances.9% a quarter earlier. inventories stand at their highest levels since October 2008. According to the latest Purchasing Managers Index report. Real interest rates in most countries are in negative territory. Is this a cause for worry? Perhaps not in itself. The UK benefits from a weaker GBP and ultra-loose monetary policy but structural problems and the government's ambitious fiscal austerity program are substantial burdens for the economy. Improving labor market conditions and higher household incomes should temper the slowdown in sectors not focused on exports. thereby fueling real estate markets. As a consequence of slowdowns in the US and Europe. we expect the ECB to keep rates low until at least mid-2011 and then to start on a gradual tightening path. down from 11. but we think there is a strong likelihood that China's growth will decelerate faster than we initially estimated. On the other hand. in our view. In combination with weaker external demand from the US and Europe. Year-on-year. the focus lies now increasingly on domestic consumption. Norway and Sweden are growing briskly and their central banks have tightened or will soon tighten policy gradually. On the manufacturing side. should profit from solid global demand. This also applies to China. growth could be considerably below trend in 4Q10. the pace of interest rate normalization is likely to slow in the region. In addition. Consumer sentiment diverges Consumer sentiment index in selected EMU countries Source: ThomsonReuters EcoWin.

UBS WMR Global economy . to some extent. Asia led the recovery Real GDP growth (% y/y) 11 9 7 5 3 1 -1 -3 -5 -7 -9 2004 2005 2006 Latam 2007 2008 Asia ex Japan 2009 EMEA 2010 Source: ThomsonReuters EcoWin. Prior to the crisis. or whose banks depended on funding from wholesale capital markets. were hit hardest by the crisis. we expect the region to recover more slowly.4 . twice as fast as Mexico.UBS Wealth Management Research 22 July 2010 Global economy Different picture in Eastern Europe and Latin America Those emerging economies that were most exposed to the United States or to the European Union. Mainly. rather than the wait for an export-led recovery. those that had been able to finance themselves domestically or had export contracts with fast-growing Asia were more able to withstand this turmoil. We note that it is also the region most vulnerable to setbacks in EU growth and to disruptions in capital markets. which has a strong domestic story. Nevertheless. we believe that the growth numbers are sufficiently strong so that only another severe external shock would warrant a second glance at a recession scenario. for Central and Eastern Europe as a whole. for making a prediction on how Latin America and Central and Eastern Europe will perform in the second half of 2010 and in 2011. This provides a guideline. This explains why we expect Brazil. this region saw the mushrooming of branches of banks headquartered in Western Europe. This is also where real estate values – the collateral for loans – have taken a hard knock. The situation is slightly different in Central and Eastern Europe. By contrast. These numbers are cushioned enough for these economies to still steer clear of a double-dip recession. the strength of domestic demand should be a more reliable engine of growth in the current environment. Accordingly. to grow 8% this year.

divisions or affiliates of UBS. via del vecchio politecnico 3..A. Bockenheimer Landstrasse 2-4. This publication is distributed to private clients of UBS London in the UK. At any time UBS AG and other companies in the UBS group (or employees thereof) may have a long or short position. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). Futures and options trading is considered risky. by UBS Bank. This publication is for your information only and is not intended as an offer. registered under the Indonesian Capital Market Law and Regulations. funds and investment business. an exempt financial adviser under the Singapore Financial Advisers Act (Cap. a licensed bank under the Hong Kong Banking Ordinance and a registered institution under the Securities and Futures Ordinance. New South Wales. 19) regulated by the Monetary Authority of Singapore. but no representation or warranty. Different assumptions could result in materially different results. Global economy .. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. French "société anonyme" with share capital of € 125. UBS expressly prohibits the distribution and transfer of this document to third parties for any reason. in respect of any matters arising from. value or income of an investment. Australia: Distributed by UBS Wealth Management Australia Ltd (Holder of Australian Financial Services Licence No. The analysis contained herein is based on numerous assumptions. UBS Deutschland AG is authorized and regulated by the "Bundesanstalt für Finanzdienstleistungsaufsicht". Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. boulevard Haussmann F-75008 Paris. a regulated bank under the supervision of the "Commission de Surveillance du Secteur Financier" (CSSF). © UBS 2010.944. the Abu Dhabi Securities market or any other UAE exchange. Changes in FX rates may have an adverse effect on the price. units. France: This publication is distributed by UBS (France) S. the Dubai Financial Market. We are of necessity unable to take into account the particular investment objectives. a subsidiary of UBS AG. The document may only be used by the direct recipient of this information and may under no circumstances be passed on to any other investor. 69. Past performance of an investment is no guarantee for its future performance. or a solicitation of an offer.Version as per January 2010. sale or delivery of shares or other securities under the laws of the United Arab Emirates (UAE). is a provider of investment services duly authorized according to the terms of the "Code Monétaire et Financier". Hong Kong: This publication is distributed to clients of UBS AG Hong Kong Branch by UBS AG Hong Kong Branch. financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. 231127). to buy or sell any investment or other specific product. they will not be covered by the UK regulatory regime or the Financial Services Compensation Scheme. and will not be. Jersey: UBS AG. The contents of this report have not been and will not be approved by any authority in the United Arab Emirates including the UAE Central Bank or Dubai Financial Authorities. or in connection with. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. Canada: In Canada... This report is for distribution only under such circumstances as may be permitted by applicable law. or deal as principal or agent. Jersey Branch. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith. Germany: The issuer under German Law is UBS Deutschland AG. 2 Chifley Square. All rights reserved. to its clients and prospects. in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer. this publication is distributed to clients of UBS Wealth Management Canada by UBS Investment Management Canada Inc. NSW 2000.A.. Chifley Tower.C. the Emirates Securities and Commodities Authority. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US persons.A. In certain countries UBS AG is referred to as UBS SA. is regulated and authorized by the Jersey Financial Services Commission for the conduct of banking. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. Luxembourg: This publication is not intended to constitute a public offer under Luxembourg law. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS.UBS Wealth Management Research 22 July 2010 Global economy Appendix Global Disclaimer Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas.. S. Austria: This publication is not intended to constitute a public offer or a comparable solicitation under Austrian law and will only be used under circumstances which will not be equivalent to a public offering of securities in Austria. a bank registered with the Bank of Spain. Spain: This publication is distributed to clients of UBS Bank. and are subject to change without notice. USA: Distributed to US persons by UBS Financial Services Inc.A. Paris B 421 255 670. All information and opinions as well as any prices indicated are current as of the date of this report.A. A member of the London Stock Exchange.The key symbol and UBS are among the registered and unregistered trademarks of UBS. Indonesia: This research or publication is not intended and not prepared for purposes of public offering of securities under the Indonesian Capital Market Law and its implementing regulations. Italy: This publication is distributed to the clients of UBS (Italia) S. Sydney. Milano. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Business Divisions of UBS AG (UBS) or an affiliate thereof. Securities mentioned in this material have not been. Singapore: Please contact UBS AG Singapore branch. into other areas. UBS will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document.S.p.A. UBS Financial Services Inc. 60306 Frankfurt am Main. R. authorized and regulated in the UK by the Financial Services Authority. UAE: This research report is not intended to constitute an offer. UK: Approved by UBS AG. but might be made available for information purposes to clients of UBS (Luxembourg) S. UBS (France) S. the analysis or report.726. Bahamas: This publication is distributed to private clients of UBS (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations. Dubai: Research is issued by UBS AG Dubai Branch within the DIFC. Where products or services are provided from outside the UK. This document may not be reproduced or copies circulated without prior authority of UBS or a subsidiary of UBS. is intended for professional clients only and is not for onward distribution within the United Arab Emirates. and not through a non-US affiliate. regulated by French banking and financial authorities as the "Banque de France" and the "Autorité des Marchés Financiers". an Italian bank duly authorized by Bank of Italy to the provision of financial services and supervised by "Consob" and Bank of Italy. express or implied. S.5 . to which this publication has not been submitted for approval.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->