First of all I am Peter Martyr, Chief Executive of Norton Rose, and I welcome you all here today for the launch of the CEO Briefing.
Robert Ward - Director, Global Forecasting Economist Intelligence Unit
We do have to address the issue of are we heading for a recession or a depression. It is a binary choice, we are no longer in the position that we were maybe a couple of months ago thinking maybe we will avoid a recession - we are heading for one. I want to explain why we, at the Economist Intelligence Unit, think that we are going through a recession rather than a depression.
Focus on policy of course, what we are seeing in terms of policy thanks to Gordon Brown, Ben Bernanke, and others is absolutely unprecedented. We are in totally new waters here. This does bring with it opportunities as well as great risks, and I think we have to, as part of our forecast, address these. But I want to end by looking slightly to the future and give your some pointers as to what the world will look like once we have started a recovery, and we will do.
The world will recover, these things do not go on forever, and also finish by pointing out some of the signs that you need to look for if you are looking for a recovery. The downturn here for 2009 is, at market rates any way, worse than any downturn that we’ve seen since 1950, actually I think it’s the worst downturn since the 1930s, certainly for the UK, it certainly is. The downturn is going to be very unpleasant. One of the reasons for this, of course, is that the global economy, and again this makes this particular downturn quite unique, is in a synchronised downturn. It’s slightly differentiated from what went on in the great depression, this is a synchronised downturn where every single country is either going to grow very slowly or will contract this year.
One of the interesting things about the currency markets last year, of course, was that the US, which is going into its worst recession since the 1930s, actually had - the US Dollar had its best year for 10 years. This is sort of a nice indication if you like of just how odd things are and then you can see obviously towards the end of last year the Dollar collapsed and then the Dollar has been rising again this year. I mean it’s up and down like nobody’s business. This is, perhaps a good way to describe it, is a parade of the ugly sisters - which is the ugliest at any particular moment. At the moment Sterling definitely is the ugliest and you saw Sterling tank a little bit against the Dollar today or yesterday One I’d concentrate on is actually the Euro. I think there are a lot of problems coming in with the Euro going forward and the viability of the Euro zone, the extent of the downturn in some of these other Euro zone countries, including Germany actually, so I would be more pessimistic about the Euro over this year and more optimistic perversely enough about the US Dollar, partly because of course the policy response in the US has been so incredibly aggressive. If fiscal policy is to be successful globally, it has to be a global concerted effort otherwise it leaks out of those countries that are actually spending the money. So protectionism is one issue I think that we should be worried about and again I think this was in the CEO briefing as a concern of executives.
Another interesting thing about what’s going on is that politics are back. Politics was pretty much dead in the boom years.
What do we need to look for, for the recovery? We do have to think about the US housing market, once you see stabilisation there then I think that will be a very good sign that the world is about to get back on its feet again. I don’t think this will happen until 2011, this is my call on it - the earliest 2010 but I think 2011 is a safer bet. Another thing to look for, of course, is the return of risk appetite - this has to come back - it is very much impaired at the moment so do look for more interest in M&As, there are opportunities out there particularly in the financial sector but elsewhere as well. We need to see risk appetite coming back and once you see that you will know that the very worst of this is over and we are on the road to recovery.
A key point, of course, is savings rates. The UK savings rate, the US and the Australian saving rates all at zero, they do need to come back up probably 5 or 6 per cent. The swing upwards can be quite violent and while we have this rebuilding of household balance sheets that of course means no-one is spending. But once savings rates start to stabilise it means that consumers are in a position to spend out of income and then that puts private consumption at a much better, at a much more secure, trajectory. A key point actually, the last one perhaps is this innovation surge. I think this is something that has been lost in the commentary, particularly in the States. The United States has a tremendous capacity for rebuilding itself and for innovation, I think it’s one of the core strengths of the United States. This is an incredibly unprecedented situation. None of the policy makers has any experience in dealing with this, they’re all kind of making it up as they go along. So, hoping it will work, but not sure if it will. So when you’re hearing the likes of the politicians and the bankers, the central bankers and what have you, making policies, do be sceptical. I’m sure you are already, but do be sceptical.
The one man that can actually make a difference here is Barack Obama. A lot of pressure, of course, on one man and a little bit ridiculous I suppose to expect this one man to do everything for everybody, but I think when the recovery comes it will partly be thanks to him and his spending, and when the recovery comes it will probably come first in the United States and that will help to bring everybody else out of it.
Back to top