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Is the global recovery stalling?

Is the global recovery stalling?. Adrian Cooper acooper@oxfordeconomics.com. October 2010. Oxford Economics.

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Is the global recovery stalling?

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  1. Is the global recovery stalling? Adrian Cooper acooper@oxfordeconomics.com October 2010

  2. Oxford Economics • Founded in 1981 as a joint venture with Templeton College in Oxford University, Oxford Economics has since grown into one of the world’s foremost independent providers of global economic research and consulting • The rigor of our analysis, calibre of staff and links with Oxford University make us the most trusted resource for decision makers seeking independent thinking and evidence-based research. • Over 60 in-house economists. • Extensive experience in industry and public-sector analysis. • Access to over 100 economic research groups through the UN's project link. • Links to Oxford University and other leading research institutes. 2

  3. Our track record

  4. Global growth better than expected in 2010

  5. World trade has bounced back very strongly

  6. Two key points • There is still a very high level of uncertainty about the outlook, especially in the US and Europe • The recession was driven by the corporate sector and the shape of the recovery will depend on how corporates react in different countries

  7. US weaker than Europe in Q2…

  8. …although Europe still lagging US recovery

  9. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  10. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  11. US domestic demand still strong in Q2

  12. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  13. ISM points to sustained healthy growth

  14. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  15. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  16. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

  17. But corporates are still not hiring in the US…

  18. Strong productivity promised jobs rebound…

  19. …given US productivity level very high

  20. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction and outlook in this sector is bleak • Regional mismatch between labour demand and supply • Uncertainty

  21. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

  22. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

  23. Changes in US unemployment - worst & best

  24. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

  25. Bernanke on uncertainty Statement to Senate Banking Committee, 22 July: "Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain.“ Keynote speech at Jackson Hole, Wyoming, 27 August: “…macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.”

  26. The recession wasn’t consumer driven in US…

  27. …and even less so in Germany

  28. Nor were bank job cuts as bad as feared

  29. Corporates have driven the cycle – in the US…

  30. …and globally, then magnified through trade

  31. Corporate sector now running big surpluses

  32. Partly that is banks…

  33. …but critically it is also non-financials

  34. Government retrenchment intensifying…

  35. …amid threat of Eurozone sovereign debt crisis

  36. And households constrained not only by debt… Eurozone

  37. …but also the weak labour market…

  38. …and squeeze on real wages as well as higher taxes

  39. Financial surpluses here for extended period

  40. So consumers will lag rather than lead recovery

  41. Corporate surpluses normally get spent in US…

  42. …and elsewhere

  43. We are seeing some recovery in M&A

  44. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

  45. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

  46. Excess capacity holding back investment Eurozone: Capacity utilisation and real non-residential investment US: Capacity utilisation and real non-residential investment

  47. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

  48. Companies seeking to pay down debt

  49. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

  50. Corporate lending very weak

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