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Thursday, December 3, 2009

Will 2010 be a better economic year? PT1

The IMF in a recent statement that the crisis is over, the worse is behind us, recovery is seen and the best is yet to come. Quoting the IMF in their World Economic Report in October, 2009 explicitly stated in the first chapter titled "The Global Recession is ending".

That may be true in some instances, but there is still very much to be done and perhaps, sadly, little than can be done to save much.

In light of this, can we expect a better 2010 in The Caribbean and larger developing world, in any event? It all depends on what other larger countries do and how much leeway we have with expanding interests past the traditional positions, if there is the notion of continued dependence on larger economies to lead the charge.

I remember one of my very first articles back at the end of 2008. It stated that the global economy would begin to rebound by Q3 this year. To some extent, I was correct, albeit that the rebound was not as upbeat as one would have read into my analysis and the growth is being led by Asia at large- China and South East Asia to be exact- as opposed to the traditional Triad (EU, USA and Japan).

Let's take a deeper look at some of the issues analysts have been looking at to gauge their outlook: manufacturing, retail sales and consumer confidence.

Led primarily by Asian markets, manufacturing has rebounded with little or no pick up in the USA or in Europe. The US Industrial Activity Report, or the "Biege Book" over the last year has stabilized towards accepting lower level of production and output expectations, to some 20% below that of 2006 and 2007. In Europe, the details are slightly more encouraging, due to the issue that emerging economies in the post soviet bloc's are still developing and commodities such as oil, coal and car manufacturing, are experiencing steady growth.

Coming into the end of the year, as it relates to consumer confidence indexes broadly, analysts are predicting that sales will experience an uptick due to the Christmas season. Retail sales have been coming along slowly, thanks’ to the cash for clunkers exercise in the USA and welfare programs in the USA and Europe; i.e., stimulus checks in the USA and added welfare spending in most of Europe as well as VAT relaxation.

However, are these issues primarily linked to the larger issues with the economy and recovery? Also, will this compendium of criterion, moving forward, be less or more affected by other conditions that impact them all? Should there be any real concern that after the Christmas season, consumer confidence will see comparable seasonal inclines?

To be fair, the USA and Europe are still not producing as much or as fast. Corporate defaults are at an all time high in Europe and are to be at a sustained default level, going into 2011 as well as into 2012 by some of the more dire predictions.

American production is up, but production volume is down. While also, job cuts, having worked to increase productivity levels by 10% to 15%.

For one, the issue of employment prospects and current employment rates is first and foremost.

The US just cut nearly 200 thousand private sector jobs in November, which was stated as the smallest job cut over a month period since 2008.

In Europe, The Employment in Europe report forms the analytical basis for the Joint Employment Report (JER) is slated to be out by December 9th, 2009. But, from the onset of the crisis, over 4 million.

Additionally, due to Europe's fervor for regulation, more private sector jobs are slated to be lost. Particularly with regulation in the financial services sector as well as regulation vis a vis carbon policy.

Reports up to April, 2009 from the International Labor Organization (ILO), also has global employment significantly down at -1.3%. This means that job growth has not only receded, but permanent jobs may have been lost across Europe and America, with modest gains in North Africa/Middle East and in East Asia.

In my estimation, the jobs lost over this recession, will never return to the traditional, real sectors of the developed markets the way it has been in the past in the USA and established Europe.

Higher technology, coupled with the uncertainty of the outlooks which are prompting managers to maintain labor costs, while reaping profits at the margins due to the higher productivity, will see to that.

It is up to, in turn, developing and emerging market countries to create traditional sector jobs to sustain growth into, what I would term, developed market economies “funking out".

The issue of increased investment, particularly led by private equity, is another issue to monitor for signs of progress.

The reason why private equity should be monitored, is because private equity is what drove the market, pre crisis. In 2008, private equity fell by 40% over the previous year, directly correlated with recessionary economic growth, with no signs of increased activity as it relates to mergers and acquisitions, or improved conditions in large firms outside of high technology.

The worst of it with private equity is that as long as asset pricing remains unstable and the issue of market/mark to market evaluation remains uncertain, private equity will remain silent, if all circumstances remain constant over the short to medium term.
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