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Euler Hermes Economic Research |
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| Editorial |
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| 2008: from uncertainty to anxiety |
After an end of 2007 when the experts wanted to believe that the only impact of the subprime crisis might be a possible slowing in the US economy in 2008, the start of the year awakened us to a more alarming prospect. Incontestably, a crisis has arisen in the United States, and the real questions now centre on what scale it will assume, how long it will last, and how gravely it will impact on the European and world economies. Let us make a rapid assessment of the news of recent weeks. Overall, the US figures are bad – for employment, consumption, manufacturing indices, construction, and the auto sector. Inflation has clearly increased, even though the picture is different for commodity-based products than for industrial goods, whose prices continue to fall. Financial markets are under pressure, on all the world exchanges. The major fraud suffered by Société Générale in France, coming through ill luck at this troubled juncture, will further narrow credit for financial establishments already seriously shaken by the subprime crisis. At the same time, interest rate policies seem very poorly coordinated. In the United States, the Fed is aggressively slashing rates, while President Bush embarks on a very determined stimulus package, proof at least of the administration’s ability to act in an election year. Such has been the main good news in recent weeks. In Europe, the European Central Bank remains tied to its sole mandate of combating inflation. In light of all this, what prospects do we see for 2008? So far, there are no tangible signs of recession in Europe, despite a reversal in the construction sector in a number of countries (Spain, the UK and Ireland). We continue to expect a noticeable deterioration in European economies, but we think that this come more in the form of a momentary ‘air pocket’, that the US economy will revive at the end of the year, that the emerging countries will continue to enjoy sustained growth, and that we will enjoy a reasonable level of world growth in 2009. Even so, the ‘air pocket’ will not fail to impact on the French economy. Away from the spotlights on the giants of the CAC-40, France’s business fabric of SMEs is quite fragile. They are little structured, not very profitable, and vulnerable to any tightening of credit. This applies both to bank credit, which we know well will be less forthcoming and more expensive, and to credit between businesses, which the government in authoritarian fashion wants to reduce, without really understanding that many businesses will not be able to survive such a measure. Beyond this scenario, which at this stage is still a moderate one, we must of course consider the potential for major geopolitical crises in areas of continued risk – the Middle East, Pakistan and Africa. We do not include China, finding it hard to imagine that in this historic year of Olympic Games in Beijing the country would allow any destabilisation to occur.
Source: Economic Outlook, January 2008 |
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