2011 Shaping Up to Be a More 'Normal' Year

After a difficult and volatile year, 2011 is potentially shaping up as more 'normal' and we are bullish on equities.

Andy Brunner, 27.12.2010
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Mitä tapahtuu maailmantaloudessa ja finanssimarkkinoilla vuonna 2011? Tässä englanninkielisessä artikkelissa OBSR-tutkimusyhtiön päästrategin Andy Brunnerin näkemyksiä. OBSR on osa Morningstaria.
Economic & Financial Market Background
In recent months official economic data and survey reports have generally proved to be stronger than consensus expectations. This trend continued through November, leading to a number of the main investment houses revising global growth forecasts higher for both this year and next. Those yet to do so generally acknowledge a reacceleration in activity is underway but have been hesitant given the uncertainty created by the evolving eurozone sovereign debt crisis and fiscal decisions in the US.

The consensus estimate from the main investment houses is for global growth in 2011 to be around 4.2%, a little below the 4.7% expected to be recorded this year but still an above trend pace. As in 2010, growth rates are expected to remain uneven with the developed economies again contributing relatively modestly while the emerging economies, and especially Asia, are forecast to extend the recovery trend, albeit with lower headline growth. Average GDP growth rates from the main investment houses we follow for the main economies/geographic areas are shown in the table below.

The slowdown expected in the emerging economies is principally due to the excessively strong growth recorded in 2010 on exit from the recession, but also to the policy tightening increasingly being undertaken to prevent economic overheating and keep inflation contained. The developed economy background, by contrast, with all the implications of high levels of both government and consumer debt, weak consumer confidence, bank system deleveraging etc., has created a consensus "new normal" view that the developed world is doomed to a period of sub-trend growth. While there is no doubt that private sector deleveraging and fiscal consolidation will be features for some time to come, there are growing indications that the huge monetary and fiscal support may at last be beginning to achieve its objective of returning countries to self-sustaining growth. This was doubted over the summer and early autumn as "double dip" fears dominated media headlines but more recently confidence has begun to build, especially in the US, that above trend growth could be on the horizon over the next few years. Much faster than predicted growth in the world’s fourth largest economy, Germany, has also added to the belief that a synchronised reacceleration in global activity could be in the pipeline. Even the UK economy has surprised on the upside and even though the UK's main forecasting body, the OBR, reduced its forecast for 2011 to 2.1%, this is far from the recessionary conditions many believed public sector cutbacks would ensure.

This growing confidence in the prospect of a "sustainable expansion" in the developed world is increasingly being reflected in financial markets. Despite another leg to the "peripheral" eurozone sovereign debt crisis, equity markets, outside of mainly Spain and Italy, have continued to trend higher over the past month, the US VIX "risk" index has spiked only modestly higher, while bond yields have continued to climb in most countries, i.e. there has been no "typical" flight to safety. Indeed, while it could eventually be premature and complacent, the financial markets appear to be treating this latest eurozone turmoil as a "local" rather than a "systemic" event.

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