The US employment report released on Friday erodes further consumer confidence. The jobless rate rose in December to 5% form 4.7% a month earlier. In December only 18K jobs has been created which increases the odds for recession. NBER Feldstein sees now recession more than likely. Recession camp is growing and now now its not only Larry Summers, David Rosenberg, Jan Hatzius but as master of disaster - Nouriel Roubini reports recession view is becoming central scenario .
The old saying, “If the United States sneezes, the rest of the world catches a cold,” remains relevant. Last year IMF analysis showed that recessions in the United States can exert significant spillovers on both advanced and developing economies.
So if the global decoupling was a key theme for 2007, global recouping may be the dominant story for year 2008. That’s Morgan Stanley’s opinion which I fully share.
Although asynchronous character of Eastern Europe economies is likely to persist as the direct trade link to US is week but growth in the region is unlikely to remain resilient to weaker external conditions. Weaker growth in western Europe – the main trading partner of the Eastern Europe and tighter liquidity conditions are likely to reduce recent strong performance seen in past periods.
CEE4 countries are well positioned for the slowdown. In Hungary monetary policy has enough room to moderate the spillover effects of disturbances from lager economies. In Poland and Czech R. economies are well balanced and the domestic demand growth was not strongly addicted to the credit growth.
Southern East Europe (SEE) balance sheet looks far more worrisome. Amid rapid credit growth fuelled by booming domestic demand traditional vulnerability indicators in SEE reached levels that in other countries has not been sustainable. Although part of the real exchange appreciation in the recent years may be explained by rising productivity but growing external macro gaps in SEE are rising questions about real overvaluation of exchange. Also historical evidence suggests that countries with wider macro gaps ahead of US recessions suffers larger cumulative loses of GDP during the recession. Romania looks especially vulnerable as the set of macroeconomic variables is far from equilibrium. C/A gap is not only large but by large by large financed through bank to bank borrowing.
The old saying, “If the United States sneezes, the rest of the world catches a cold,” remains relevant. Last year IMF analysis showed that recessions in the United States can exert significant spillovers on both advanced and developing economies.
So if the global decoupling was a key theme for 2007, global recouping may be the dominant story for year 2008. That’s Morgan Stanley’s opinion which I fully share.
Although asynchronous character of Eastern Europe economies is likely to persist as the direct trade link to US is week but growth in the region is unlikely to remain resilient to weaker external conditions. Weaker growth in western Europe – the main trading partner of the Eastern Europe and tighter liquidity conditions are likely to reduce recent strong performance seen in past periods.
CEE4 countries are well positioned for the slowdown. In Hungary monetary policy has enough room to moderate the spillover effects of disturbances from lager economies. In Poland and Czech R. economies are well balanced and the domestic demand growth was not strongly addicted to the credit growth.
Southern East Europe (SEE) balance sheet looks far more worrisome. Amid rapid credit growth fuelled by booming domestic demand traditional vulnerability indicators in SEE reached levels that in other countries has not been sustainable. Although part of the real exchange appreciation in the recent years may be explained by rising productivity but growing external macro gaps in SEE are rising questions about real overvaluation of exchange. Also historical evidence suggests that countries with wider macro gaps ahead of US recessions suffers larger cumulative loses of GDP during the recession. Romania looks especially vulnerable as the set of macroeconomic variables is far from equilibrium. C/A gap is not only large but by large by large financed through bank to bank borrowing.
Domestic demand
C/A Gap
1 comment:
Time will tell. I think most people underestimate the resilience of global economy amid global optimisation of business processes. China's consumption to GDP was 36% last year, but China contribution to global growth wad higher than US, both in PPP and in market terms. So if, a big if, China manages to encourage more domestic consumption, it could keep the world growing and reduce imbalances at the same time.
Piotr as you know I am invested in China, and this is for a long term, because I believe that 2008 will show all investors that the global growth engine is no longer in US, it is in China, or Asia more broadly. That is why yen can perform well this year (trade and geographical proximity to growth centre).
Good luck with your blog, Krzysztof
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