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Uphill struggle: Struggling to keep the economic recovery on track

Uphill struggle: Struggling to keep the economic recovery on track. Aidan Manktelow Senior Economist IBCL September 2011. Slowdown? Ask purchasing managers. PMI close to stagnant in July, August. Diffusion index; 50 is dividing line between expansion and contraction. Source: Bloomberg.

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Uphill struggle: Struggling to keep the economic recovery on track

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  1. Uphill struggle: Struggling to keep theeconomic recoveryon track Aidan Manktelow Senior Economist IBCL September 2011

  2. Slowdown? Ask purchasing managers PMI close to stagnant in July, August Diffusion index; 50 is dividing line between expansion and contraction. Source: Bloomberg

  3. Key points for 2011-12 • Shocks and stresses • Euro zone debt crisis • US debt debacle, downgrade • Volatile commodity prices • Inflationary pressures • Political tensions • Developed countries stalling • Fragile recovery, shocks impact confidence • Emerging markets • Will they calibrate policy tightening correctly? • Resilience to renewed slowdown in OECD? • Slowdown or meltdown?

  4. Our scenarios • Slow, sustained recovery • Richer countries continue to grow • In 2012 US slows to 2%, euro zone to 0.8% • Emerging markets slow but outperform • Euro zone crisis contained; oil price recedes • Recession • Shocks derail the recovery • Asset price declines hit confidence • US and euro zone suffer recessions • Defaults, break-up of euro zone • Emerging markets hit • Recovery strengthens • Policymakers get their act together • Confidence surges 50% 45% 5%

  5. Euro zone: Crisis escalates • 2nd Greece bail-out and changes to EFSF fail to restore confidence • Crisis engulfs Italy and Spain • Much larger economies, debts • ECB starts buying Italian and Spanish government bonds • More fiscal consolidation announced by Italy, Spain • Economic growth weakens (even in Germany) Bond yield, % Source: Haver Analytics

  6. Euro zone: Which way out? Three possible outcomes: • Some form of fiscal union and joint euro bonds • Would be a lengthy process • But moves would do much to reassure markets • ECB undertakes massive bond purchases • Mimicking the US Fed • Reluctant, but already some moves in this direction • Euro-zone break-up • Policy response fails to protect Italy and Spain • Ructions could spell the end for the euro

  7. Where’s the growth? Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. Source: Economist Intelligence Unit, CountryData.

  8. Relative market size: G7 vs E7 GDP, US$ trn E7 is 22% bigger than the G7 E7 is half the size of the G7 G7 = US, Japan, Germany, UK, France, Italy, Canada. E7 = China, Brazil, India, Indonesia, Russia, Mexico, Turkey. Source: Economist Intelligence Unit, CountryData.

  9. Implications for marketing strategies • Prepare for volatility • Short-term outlook is highly uncertain • Geographic refocusing • Emerging markets will become the primary source of revenue and profit • Balancing the short and long-term • Surviving today vs necessary investment in a changing world

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