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Uphill struggle: Struggling to keep the economic recovery on track

This article discusses the challenges faced in maintaining the economic recovery and highlights key factors affecting global economies. It explores different scenarios for future growth and provides insights for marketing strategies in an uncertain environment.

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Uphill struggle: Struggling to keep the economic recovery on track

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  1. Uphill struggle: Struggling to keep theeconomic recoveryon track Aidan Manktelow Senior Economist IBCL September 2011

  2. Slowdown? Ask purchasing managers PMI close to stagnant in July, August Diffusion index; 50 is dividing line between expansion and contraction. Source: Bloomberg

  3. Key points for 2011-12 • Shocks and stresses • Euro zone debt crisis • US debt debacle, downgrade • Volatile commodity prices • Inflationary pressures • Political tensions • Developed countries stalling • Fragile recovery, shocks impact confidence • Emerging markets • Will they calibrate policy tightening correctly? • Resilience to renewed slowdown in OECD? • Slowdown or meltdown?

  4. Our scenarios • Slow, sustained recovery • Richer countries continue to grow • In 2012 US slows to 2%, euro zone to 0.8% • Emerging markets slow but outperform • Euro zone crisis contained; oil price recedes • Recession • Shocks derail the recovery • Asset price declines hit confidence • US and euro zone suffer recessions • Defaults, break-up of euro zone • Emerging markets hit • Recovery strengthens • Policymakers get their act together • Confidence surges 50% 45% 5%

  5. Euro zone: Crisis escalates • 2nd Greece bail-out and changes to EFSF fail to restore confidence • Crisis engulfs Italy and Spain • Much larger economies, debts • ECB starts buying Italian and Spanish government bonds • More fiscal consolidation announced by Italy, Spain • Economic growth weakens (even in Germany) Bond yield, % Source: Haver Analytics

  6. Euro zone: Which way out? Three possible outcomes: • Some form of fiscal union and joint euro bonds • Would be a lengthy process • But moves would do much to reassure markets • ECB undertakes massive bond purchases • Mimicking the US Fed • Reluctant, but already some moves in this direction • Euro-zone break-up • Policy response fails to protect Italy and Spain • Ructions could spell the end for the euro

  7. Where’s the growth? Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. Source: Economist Intelligence Unit, CountryData.

  8. Relative market size: G7 vs E7 GDP, US$ trn E7 is 22% bigger than the G7 E7 is half the size of the G7 G7 = US, Japan, Germany, UK, France, Italy, Canada. E7 = China, Brazil, India, Indonesia, Russia, Mexico, Turkey. Source: Economist Intelligence Unit, CountryData.

  9. Implications for marketing strategies • Prepare for volatility • Short-term outlook is highly uncertain • Geographic refocusing • Emerging markets will become the primary source of revenue and profit • Balancing the short and long-term • Surviving today vs necessary investment in a changing world

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