Bank Research Consensus Weekly 05-11-09

Published May 11th, 2009 - 09:21 GMT

Signs that a bottoming process has begun in the US economy are becoming clearer daily, and aggressive policy actions have begun significantly to thaw frozen credit markets, reinforcing prospects for eventual recovery. That certainly fits the script for our baseline view. But investors should not lose sight of the risks surrounding that baseline.

Stephen Roach, Head Economist, Morgan Stanley



Weekly Bank Research Center 05-10-09



 

Credit Losses, Deleveraging and Risks to the Outlook

Stephen Roach, Head Economist, Morgan Stanley

Signs that a bottoming process has begun in the US economy are becoming clearer daily, and aggressive policy actions have begun significantly to thaw frozen credit markets, reinforcing prospects for eventual recovery. That certainly fits the script for our baseline view (see Aggressive Policy Counters Still-Strong Headwinds, April 7, 2009). But investors should not lose sight of the risks surrounding that baseline. In this report, we present estimates of credit losses in various economic scenarios that we believe could re-intensify the credit crunch and challenge the emerging consensus for recovery. And even in the more optimistic baseline scenario, we believe those losses will promote ongoing deleveraging and significantly limit economic growth.

 

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Everyone Agrees on Minus 4% in 2009 - But Not Us

Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank

The European Commission published its spring forecast this week. It is very bleak reading. Too bleak we think. The Commission forecasts a 4% drop in Euroland GDP in 2009. This is a significant downward revision compared to its January interim forecast, and brings it in line with the OECD forecast (-4.1 %) and the IMF (-4.2%). The Commission anticipates that GDP should stabilise in 2010 with a subdued recovery gradually taking hold on the back of improving financial conditions, stronger external demand, and supportive macroeconomic policies.

 

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Is That a Glimmer of Light at the End of the Tunnel?

Steve Chan, Economist, TD Bank Financial Group

After a long winter of dismal economic news, markets this week continued to warm up to signs of spring. And while uncertainty remains, the release of the U.S. stress test gave hope that the worst of the shocks to the financial system may be behind us. The rally was also aided by several leading economic indicators continuing to point in the right direction. In Canada, the Canadian job market decided to take a month off from the recession and created a pleasantly surprising 35,900 jobs in April. In the United States, jobs continued to be shed but on the bright side, the pace of declines appears to be slowing.

 

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Bleak Year for Global Economy in Prospect

Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

The world economy is currently experiencing its steepest downturn since the 1940s, with global trade expected to contract by 10% this year, see chart a. Global economic output could fall by 2%, with growth in the advanced economies dropping by at least twice this rate, around 4-5%. This is the first time that there has been a synchronised downturn amongst the major economies since the 1930s. It is interesting that the emerging markets are weathering the downturn much better than the advanced economies and better than at any time in their history - but they are not immune, as shown by including data for China in all the main country charts below. Overall, however, the emerging markets as a bloc is likely to escape an outright fall in economic output this year, due primarily to China and India.

 

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Compiled by: David Song, Currency Analyst and Geng Chen, Dailyfx.com

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