Economic outlook
To govern is to choose
20.01.2012
When Pierre Mendès France spoke thesewords before the French National Assembly in 1953, he surely had a notion of the import of what he was saying, well beyond the borders of France. What he was stressing was the intelligence, diligence and commitment required in formulating economic policy, for a country or for a union of countries.
After the crisis of 2008-2009, and the recovery begun in 2010, the Arab Spring, the earthquake in Japan, and the European sovereign debt crisis were the big events in the world economy in 2011. The Arab Spring showed us how the young, the voiceless, the outraged and often
unemployed are demanding to be taken into account in the economic choices made in their countries. The Fukushima catastrophe, for its part, demonstrated the considerable economic consequences of new risks, such as natural catastrophes, in world that has become superdependent.
Lastly, there is the sovereign debt crisis: the vanishing AAA ratings, and the financial markets seeming to dictate the composition of governments and their austerity policies – reminding us just how much formulating economic policy is a long-termundertaking, and a question of taking responsibility for your choices.
So the year 2011 has ended on a sour note. The slowdown in emerging economies is confirmed, the risk of another credit crunch is palpable in countries that are ‘underwater’ – due to their public deficits and
sovereign debt – and, lastly, the lack of visibility and lack of solutions for a strong European economic union continues to frighten the markets, businesses and households.
The start of 2012 will be just as difficult. Indeed, all eyes will be focused on European sovereign debt and howit is managed and absorbed by the market. The implementation of the rescue mechanisms, still hesitantly under design, will be critical.
How long will this thick fog hang over Europe? Only until spring, we hope. However, the consequences of the
indecision manifest in 2011 are already being felt, notably in the gloomy growth outlook and in business insolvencies in the first part of the year. This fog should lift, givingway to a difficult but bearable convalescence in the second half of the year.
"To govern is to choose, however difficult the choices" were the exact words spoken by Mendès France. Austerity cures, recovery plans focusing on productive and competitive sectors, systemic reforms (in banking, in
social security) are all necessary but complex trade-offs. The key is to choose, and to chosewhat is key.
Ludovic Subran
Source: Economic Outlook - January 2012
A scorching and prolonged Indian summer
October 2011
The scorching heat wave that had been forecast for this summer was felt, it would seem, only by the inhabitants of finance ministries across the Eurozone. Their eyes and minds were indeed focused on the spiralling sovereign debt of many European countries, which called earlier growth forecasts into question. The fears over this debt, made flesh in the financial markets, then spilled over to infect the real economy. Some observers now speak of a self-fulfilling prophecy of an often mentioned double-dip recession. Others are predicting the end of an economic and monetary union, one that, despite its still hesitant governance, has taken more than fifty years in building. These two scenarios are possible, but they still seem avoidable.
Our forecasts do confirm a certain slowdown. The outlook for world growth has been revised downwards since June, and now tops out at 3.0% in 2011 and 3.2% in 2012. The explanation lies with the revisions made in national accounts, the only slightly encouraging signs offered by advanced economic indicators, and the uncertainties over governments’ abilities to implement austerity cures without killing the patient. Our analysis here also looks into the growing differences between regions across the world, the exhaustion of favourable monetary conditions, and the doubts overhanging the real drivers of growth, such as household consumption and productive investment by businesses.
In the short term, the economic Indian summer is continuing, in the shape of a prolonged heat wave that will overhang a scenario of weak recovery into 2012. Why? Certainly, this will be because the risks seem to
have the biggest part to play in what we expect for next year, notably those that bear on the political decisions to be taken in order to stem the threat of sovereign default.
Today, economists are stretching their imaginations to develop alternative scenarios, and there is something of an underground movement aimed at finding how one might sweep away a whole universe of risks. For our part, we have chosen here to suggest an economic slowdown over the next 18 months. Unforeseeable surrounding this scenario do exist, but they pale by comparison to the uncertainties confronting economic agents. This lack of clear forward visibility, which increases the risk involved in making productive investment, lessens the prospects of growth.
Let us hope that concrete measures will be taken quickly to render the heat a bit less suffocating.
Ludovic Subran
Source: Economic Outlook - October 2011
Français
Deutsch
