Morval Vonwiller Holding S.A.: Official growth figures for the Q4 of 2009 - Mr Macro’s Opinion (Press Release, January, 2010)

Official growth figures for the Q4 of 2009 are not yet in. We can nevertheless already safely conclude (or, shall we say: in all fairness, admit) that last year’s second half was distinctly less bad than we had feared in the wake of the near catastrophic first half. Our estimates at this stage for growth rates in H2 2009 (we remind the reader: in terms of saar or seasonally adjusted annual, not year-on, rates) are 1.3% for the US, after -4.9% in H1; 1.7% for Japan, after -10.4%; 2.2% for Germany, after -8.8%; 1.1% for France, after -4.2%; 1.3% for Italy, after -7.7%; -1.4% for the UK, after -7.0%. Hence, the only country still mired in red territory would have been the UK.

In our December Opinion we however pointed out that the positive growth number for Japan is a sort of Fata Morgana in as much as, with nominal GDP still contracting, real growth was nothing but the result of an indeed worrisome case of deflation. We also warned that, in the case of the US, optimism beyond the presumption that the economy there had at last hit bottom was perfectly out of place (as incidentally confirmed by the US December payrolls report). We are now in a position to add that the same basically seems to apply to the other major economies, with a question mark as far as the UK is concerned, and with two further qualifications. The first is that in all the better (or less bad) figures there is a strong strictly mechanical rebound element, which as such is slated not to last. The second is that the front-runner in growth at this point - Germany - owes its performance by no means to a general clearing up, i.e. to something like private consumption or capital expenditure, but to its rather unique exports engine being fueled by conditions throughout the world economy, that, even though not improving in clear cut a manner, have at least moved towards becoming less unfavourable.

Prospects for this year’s first half vary.

In view of the extremely stimulative policy stance in place in the US we expect growth there to accelerate to, say, the middle of the 1.5-2% bracket. Policy is extremely stimulative in the UK too, but in this case decision makers have to grapple with this economy’s typical structural weaknesses and low degree in positive responsiveness. We are inclined to believe that UK GDP real growth will do no better than hovering around zero.

We do not expect major changes in Japan, where with the coming to power of the new government policy matters have become quite muddled. Our present working hypothesis for Japanese growth is a slight decline to the +1.5% mark.

In Euroland, where policy is expansionary too but way less than in the other zones under consideration, we assume that the present clip will be basically confirmed for the two major economies, Germany and France, with a possible minor decline to 2.0% for the first and to 1.0% for the latter. Things look somewhat different for Italy, for which we anticipate an acceleration in the economy’s cruising speed to some 2.0%. This is in line with the main index of advanced indicators computed by the OECD (the supranational Organisation of Economic Cooperation and Development, based in Paris), which since a couple of months shows for Italy a probability of growth in the near future being the highest among major economies. This calls, however, for some clarification. When these OECD data were first published they were greeted by Italian media, such as the leading national newspapers Corriere della Sera and La Repubblica, with headlines such as Italy on Top (sic). Italian Prime Minister Silvio Berlusconi went as far as proudly declaring that Italy had overtaken the UK in terms of GDP. Now, all this is of course nonsense. For one: Italy’s GDP keeps trailing that of the UK by a fair stretch. Second, even if Italy had overtaken the UK, given the sorry current status of the latter’s economy, that would not exactly qualify as a most remarkable feat. Third, the Italian economy’s chances of expansion at this stage are only the inverse mechanical effect of the depth to which it had sunk in the context of the so-called Great Recession. In fact, Italy belongs to all intents and purposes to the PIIGS group (Portugal, Italy, Ireland, Greece and Spain), which, as is well known, is severely straining the European Monetary Union (let’s note in passing that the recurrent rumors of a possible break-up of the EMU does not indicate the real likelihood of such an event but, rather, how dysfunctional the Union has become at this point).

Turning to inflation, prospects for H1 2010, again, vary to a significant extent. At one end we have deflation which struck Japan and then Germany and France, with consumer prices we put as trending toward zero in Germany and to below 1% in France (these variations, we here too remind, being not year-on but annualized rates of change over the previous period). And at the other end, we have the US and the UK, with consumer prices we see going up by some 2.5% in the case of the US and by over 3.0% in that of the UK, as a consequence of the policy stances at present put to work in these two countries. And we also have Italy, with an estimated +3.0% in consumer prices, faithful to its PIIGS group membership.

The overall short term scenario in our book remains the L-shaped one. Or more precisely, the profile we see is similar to the square root sign, with the differences that a) the first, descending part comes from higher up and is consequently longer; b) that the following upwards part is only a sort of up-tick, as such disproportionately shorter than the previous down-sloped bit, this up-tick being the point where we would more or less be at this moment; and c) with the up-tick being in turn followed by an horizontally undulating line, reflecting a state of homeostatic, unstable and very sub-par equilibrium.

For how long then do we expect this type of equilibrium to last? As long as the system, especially in the US, is not properly fixed. Which doesn’t seem to be for tomorrow.

The name of the last great white hope was Rocky Marciano, who was true to it, as he was never beaten. Recently we had a black one (hope, that is). But no longer.
(c)
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