Shift in Global Growth Engines Signals Gain After Pain – Bloomberg 10-07-12

Salient to Investors:

Jim O’Neill at Goldman Sachs Asset Mgmt said when we come out the other side with a different structure, we should have a much stronger world economy.

John Bilton at Bank of America Merrill Lynch sees a changing complexion in global growth, ending with a more balanced world economy longer-term. Bilton said this will help companies biased toward emerging-market consumers and US manufacturing over those tied to commodities and infrastructure. In the short-term, it will make it harder for regions to withstand exogenous shocks and business cycles are likely to be shorter.

Deutsche Bank says expansions are now more fragile and easily broken.

Paul Krugman said the US and Europe are nowhere close to ending the slump, and German-led austerity efforts may prompt a 1930s-style depression. Nouriel Roubini at Roubini Global Economics said growth is still anemic, and major economies are barely midstream in deleveraging.

U.S. debt is at a 6-yr low relative to GDP as homeowners, cities and companies cut borrowing. The IMF estimates the US current-account deficit will shrink to 3.1 percent of GDP in 2013 from 6 percent in 2006, and China’s surplus will contract to 2.6 percent in 2013 from 10.1 percent in 2007.

Stephen King at HSBC says narrowing trade gaps reflect stagnating global demand, and recent rebalancing has much more to do with economic weakness than strength. C. Fred Bergsten at the Peterson Institute for Intl Economics agrees, saying a very large part of the rebalancing is really due to the recession and cyclical factors, a view share by the IMF.

US exports rose to a record 13.8 percent of GDP in 2011 versus 12.7 percent in 2010. Mohamed El-Erian at Pimco said the rise in exports is significant even though from a small base. El-Erian said peripheral euro-area countries are suffering a bad rebalancing as investors force them to axe budget deficits when their economies already are contracting – the mix of good rebalancing and bad rebalancing will dominate the outlook. El-Erian said we have reached a better place but not a stable place.

Harold L. Sirkin at Boston Consulting said the US is becoming one of the lowest-cost producers of the developed world, with restrained wages and lower energy prices giving companies a competitive edge over Europe and Japan – average expenses in the US will be 15 percent less than in Germany by 2015 and 21 percent below Japan.

The US chemical industry benefits from an abundant supply of natural gas from shale versus rivals in Europe and Asia which use mainly higher-priced oil.

Nariman Behravesh at IHS said the US is beginning to do its thing – we’ve made some progress toward export-led growth, but stronger domestic demand abroad is crucial.

The IMF predicts general government spending in Greece will slide to 41 percent of GDP in 2015 from 53 percent in 2009. Joachim Fels at Morgan Stanley said previously unthinkable measures are delivering results, and is turning more optimistic about the euro’s long-term viability.

Michel Martinez at Societe Generale said hourly labor-cost growth in the euro area, excluding Germany, slowed to 1.4 percent in Q2 from an annualized 3.9 percent in 2000 to 2008 – rebalancing of cost competitiveness in the euro area is proving speedier than generally expected.

Neville Hill at Credit Suisse said Germany could play a part by become less like Germany by diluting its reliance on exports and rallying spending at home.

Ken Courtis at Next Capital Partners said China has exported net growth to the world in the past five years, having previously subtracted from it, and this rebalancing shift is set to continue.

Capital Economics estimates the contribution of domestic consumption to GDP in China fell to 35 percent this year from 44 percent a decade ago. Morgan Stanley said a slowing world and increased competitiveness abroad means China can no longer can lean on exports.

Read the full article at http://www.bloomberg.com/news/2012-10-07/shift-in-global-growth-engines-signals-gain-after-pain.html