European Central Bank President Trichet recently said in the French newspaper, Le Monde, that the G20 has made progress on reforms to make the financial system more stable after the crisis.
He also said: “But the most difficult question is still open: Europe, America, China; are they ready to modify their macroeconomic policies in the future — by following the advice of the IMF and under pressure from their peers, for the common good, and world economic stability?”
I would like to say: “Don’t listen to what they say, but look what they do.”
That said and ahead of the G20 meeting this coming Friday and Saturday in Pittsburg, where I don’t expect a lot to happing besides a lot of declarations of good intentions, I think it’s not an overstatement to say that the now anticipated global economic recovery in 2010 still faces important factors of uncertainty.
It’s a fact that the current massive global economic and fiscal stimuli dynamics will, at least temporarily, unavoidably start losing a great part of their momentum in 2010 when they will start gradually disappearing in most, if not in all of the leading world economies.
Nevertheless, the possibility also still remains, even with only a low grade of probability, at least in my opinion, that the actual cyclical upswing dynamics could continue for a longer period of time because the decline in demand has been so extreme.
By example, this could happen if expectations among producers and consumers improve more sustainably than anticipated. If that were to happen, the global economic recovery could be stronger than anticipated and we could see a V-shaped recovery.
That, in fact, is what the markets, at least for now, seem to anticipate.
Also despite the impeding factors like deleveraging and growing consumer reluctance, among others, we could see stronger global GDP growth, which would include the United States.
But, unfortunately, even under such an optimistic scenario, nobody can seriously expect any easing of tensions in the labor markets in 2010 because employment always lags what’s going on in the real economy.
On the other hand, we also must admit there will continue to be global economic risks which could easily paralyze this recovery. These risks include the uncertainties about persisting global toxic-related banking problems that remain a serious, and often underestimated, burden for the recovery and the global economy as a whole.
Besides that, this recession that shows timid signs of technically ending in various countries, could have a more negative and deeper impact than markets actually seem to anticipate on the labor market and on private consumption. We’ll see if the markets are right.
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