Archive for July, 2009
Coinciding with this week’s release of RGE Monitor’s updated 2009/10 Global Economic Outlook, here we present an overview of our European Economic Outlook, including the Nordics, the Baltics and Central and Eastern Europe. Previous newsletters addressed RGE’s U.S. outlook, the outlook for China, and Japan.
The full version of the European outlook, available to subscribers, includes the following sections:
– Is the Worst Over? Clues from Industrial Production and World Trade
– Potential Output, Potential Growth and Output Gap
– Inflation or Deflation?
– Fiscal Policy
– Credit Market Conditions
– The European Banking Sector
– Sovereign Risk Watch: Ireland
– Sovereign Risk Watch: Greece
– Private Consumption and Labor Markets
– Power Shift Back to Nation States?
From The New York Times:
LAST week Ben Bernanke appeared before Congress, setting off a discussion over whether the president should reappoint him as chairman of the Federal Reserve when his term ends next January. Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.
Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country’s economic free fall. This lesson has paid off. Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.
6/26/09 – CNN – Fareed Zakaria’s GPS Program on CNN: Recession’s End Near? (Click here for Video)
7/22/09 – Nightly Business Report, PBS – NYU Professor Nouriel Roubini’s Outlook on the Economy
Transcript from PBS:
Wednesday, July 22, 2009
SUZANNE PRATT: Joining me now with his thoughts on health care and the economy is Nouriel Roubini. He is the economics professor at NYU’s Stern School of Business, who forecasted the housing bubble way before everyone else. Professor Roubini, welcome back to NIGHTLY BUSINESS REPORT.
NOURIEL ROUBINI, ECONOMICS PROF., NYU STERN SCHOOL OF BUSINESS: Pleasure being with you tonight.
PRATT: I want to start with health care. What do you think if there is health care reform and we see something in the near future, it’s likely to do to economic recovery in this country?
The global recession may end towards the end of 2009 rather than sooner and the global recovery in 2010 will be anemic and well below trend as leveraged and income/profit-challenged households, firms and financial institutions are constrained in their ability to borrow, lend and spend. Meanwhile a perfect storm of persistently large fiscal deficits and public debt accumulation, monetization of such deficits that will eventually increase expected inflation, rising government bond yields, soaring oil prices, weak profits, still falling jobs and stagnant growth has inched a little closer on the radar of this cloudy global economic outlook. It’s a storm that could blow the recovering world economy back into a double-dip recession by late 2010 or 2011. It doesn’t have to come to pass. But it is getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented once a more sustained global recovery is achieved.
After rising sharply for three months, asset markets in the mature economies have paused and started a tentative correction in the last few weeks. Risk investors that had driven up prices have partially taken profits, and suddenly they are wary. They are right to be wary.
7/20/09 – CNBC – Roubini: Economic Recovery to be ‘Very Ugly’ (Click here for video)
“It has been widely reported today that I have stated that the recession will be over ‘this year’ and that I have ‘improved’ my economic outlook. Despite those reports – however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.
“I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If, as I predicted, the recession is over by the end of the year, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.
Mounting Job Losses Will Hurt Consumption, Housing, Banks’ Balance Sheets, Public Finances and Lead to Protectionist Pressures
Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.
But these raw figures on job losses, bad as they are, actually understate the weakness in world labor markets. If you include partially employed workers and discouraged workers who left the U.S. labor force, for example, the unemployment rate is already 16.5%; even temporary employment is sharply down. Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses as economies suffer from problems of insolvency, not just illiquidity, and as the fiscal stimulus programs are too small and not labor intensive enough. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically.
Moreover, many employers, seeking to “share the pain” of the recession and slow down the rate of layoffs, are now asking workers to accept cuts in both hours and hourly wages. Thus, the total effect of the recession on labor income of jobs, hours and wage reductions is much larger.
Other indicators are suggesting a protracted period of job losses and a persistently high unemployment rate even after the recession is over. The average duration of unemployment is not at an all time high in the U.S. Many manufacturing sectors are on a secular decline (autos, etc.) and employers are shedding jobs on a permanent basis; employment in the previously bubbly sectors (housing and related housing/real estate services, banking and financial services) is falling sharply and will not recover for a long time. The process of offshore outsourcing of both blue collar and white collar jobs is still in full swing. A lot of the job losses in the U.S. and in other advanced economies are structural rather than cyclical; many jobs will never come back.
A sharp contraction in jobs and labor income has many negative consequences on both the economy and financial markets. There are at least five important ones that we will discuss next:
Roubini on a Bloomberg Panel: Recession will Last Another Six Months and the Recovery will be Shallow
7/9/09 – Bloomberg – Roubini Says U.S. Recession Will Last Six More Months (Click here for video)
July 9 (Bloomberg) — Nouriel Roubini, a professor at New York University’s Stern School of Business, and Robert Shiller, chief economist at MacroMarkets LLC and an economics professor at Yale University, talk with Bloomberg’s Tom Keene and Ken Prewitt about the outlook for the U.S. economy.
Greetings from RGE Monitor!
The first half of 2009 has ended and we at RGE Monitor are in the process of updating our quarterly Global Economic Outlook. Below you will find a preview of our views on the short-to-medium term prospects for the U.S. economy. The full version of the RGE U.S. economic outlook (available for RGE Premium subscribers) will include analysis on:
- U.S. Consumer Comeback?
- Is the U.S. Housing Sector Stabilizing?
- U.S. Commercial Real Estate the Next Shoe to Drop?
- U.S. Industrial Production and Investment in a Severe Downturn
- U.S. Exports Under Pressure
- U.S. Labor Market Pain Continues
- Fiscal Stimulus Provides Inadequate Stimulus
- Ballooning U.S. Fiscal Deficit Raises Concerns
- Fed Too Soon to Exit Easing Mode, but Time to Talk About It
- Inflation Pressures Not in Sight Quite Yet
- U.S. Treasuries
- U.S. Dollar
- Structural Weaknesses Will Constrain the U.S. Economic Recovery
The RGE Monitor Global Economic Outlook presents analysis on over 70 countries and several global crucial issues. Specifically, in this Q2 update, our analysts cover trade and protectionism, risks of rising fiscal deficits around the world, global imbalances and climate change, among other issues. The RGE Monitor Global Economic Outlook will be available soon to RGE Premium subscribers.
Now back to our U.S. preview.