EIU Global Outlook 2009 - what a downer

Yesterday, I attend the Economist Intelligence Unit event "Global Outlook 2009: What lies ahead for the global economy." Below are a few notes based on diligent typing by my colleague Jeff Winter. The comments by the speaker were interesting. However, combining yesterday's talk with the book I'm currently reading ("Contagion: The Financial Epidemic That is Sweeping the Global Economy... and How to Protect Yourself from It")is really bumming me out. Oh, and don't even ask me what I bought Citibank at. :(

Summary

Government action has been significant

Slump will bottom out in late 2009, with meaningful growth in 2010-11

There are opportunities

Cheap assets

Some industries will do well: Health, basic foods, education, infrastructure 

How long will the recession last? 

No guarantees, of course, but this quarter may be the bottom, next quarter a touch better, and modest recovery begins towards end of year (Bernanke agrees)

No meaningful recovery until 2010-11

FYI – EIU is suspicion of US predictions of 4% GDP growth in Obama's budget

Housing is key. When housing prices recover, so will the economy

US, UK Japan expected to decline 2.5 – 5% GDP in 2009

Very aggressive stimulus across the globe (US stimulus is 5.7% of GDP; China’s is approaching 15%!)

Interesting facts

Global recession - First time since 1930s that total global output contracts

Banks will take longer than rest of economy to recover (balance sheet adjustments take years to fix)

Housing pricing are falling at an accelerating rate for 21 months (i.e. each month, prices are falling at a faster rate the month before) 

Consumer spending is 70% of US economy…recovery won’t happened until consumers return > savings rate has sky-rocketed, hindering recovery 

Three crises, feeding on themselves 

Financial crisis – leverage, bank write-downs, credit freeze

Developed world recession – withdrawal of credit, spending and investment decline

Emerging market crunch – significant drop, but emerging markets still growing (e.g. China @6% GDP)

- I asked a follow up question about outlook for Mexico/Brazil. Didn't get as much expansion on this subject as I would like. However, Mexico with it's severe dependency on the US is likely going to get hit harder than Brazil. He thought Brazil's financial sector was in relatively decent shape.

Two groups

Debtor nations – have to sell assets to pay down debt…prevents recovery (Uh, this is us, er US)

Creditor nations – have no export markets 

China

Vulnerability potential…Note – this is NOT a prediction, but rather a risk

Slower growth > production slows > workers idled / layoffs > profits squeezed > bad loans increase (much borrowing from China) > banks struggle (similar to US?) > SOCIAL UNREST 

Japan

Back in recession…GDP contracted 12% n Q4!  5.5% contraction predicted for 2009

Japan’s biggest issue is lack of export markets

Risk of deflation – Japan more like Germany than US

Emerging markets

Hurting, but better than off than developed nations

Three issues

Reduced exports

Less inward investment from rich nations (FDI)

More difficult for indebted nations to borrow

Europe

Full blown crisis

UK hit hardest

Industrial production and housing market 

How are businesses reacting?

Strategic acquisitions (if you have money, assets are cheap)

Increased response to key accounts is by far #1 response in survey

Much more focus on risk – organizationally, more reports, investments

Off-shoring – China and India still most popular place