Dove sono i driver di crescita per la seconda parte del 2012? il contributo di Nouriel Roubini
di Nouriel Roubini
• A confluence of factors—the economic outlook, a shortage of policy bullets and tail risks—make me cautious about the second half of 2012, with potential ramifications from sources of downside risk for consumer, investor and firm behavior in the current quarter, preventing the ever-elusive virtuous cycle—a negative feedback loop could take things from bad to worse in H2.
• The dysfunctional politics within the eurozone (EZ) will come to the fore with the start of the French election season this week, set against the backdrop of increasingly unpopular governments and deteriorating conditions in Greece, Spain and Italy.
• There is still no clear driver for the self-sustaining momentum needed to boost U.S. economic growth into a higher gear. Moreover, the expected fiscal austerity cliff in 2013 could start to negatively affect expectations and confidence in H2 of 2012, potentially dampening spending. Within the same timeframe, the November presidential election brings uncertainty over the policy agenda during the next presidential term.
• The only potential growth catalyst for China in H2 is policy easing, a course of action complicated by inflation dynamics. To differing degrees, all of the BRICs are now following a model of state capitalism that will not be beneficial for long-term economic growth.
• Regarding monetary policy, we are simply nowhere near the scale of intervention that would start reflating advanced economies, while central bankers may be increasingly constrained by political pressures. We are indeed running out of policy bullets and the policy artillery has so far failed to restore even potential growth. Any slowdown in H2 has the potential to exacerbate conditions, whether with respect to a growth deterioration or drop to outright stall speed.
With the Q1 earnings season well underway in the U.S., I look ahead to drivers of activity in H2 2012. Amid a recent softening in U.S. macro data and restraint from the Fed in contemplating potential future easing, investors have adopted a cautious stance once again, while consensus has pushed back its expectation for U.S. economic growth to reach 2.5% or higher—the point at which a self-sustaining and robust recovery could take hold—further to H2. At RGE, our growth forecasts remain below 2% for the final two quarters of 2012.
A confluence of factors—the economic outlook, policy challenges (as policy makers run out of bullets) and tail risks—make me very cautious about H2, with potential ramifications from sources of downside risk for consumer, investor and firm behavior in the current quarter, preventing the ever-elusive virtuous cycle. A negative feedback loop could take things from bad to worse in H2. In contrast, the consensus is now expecting upside risk in the current environment to proliferate, for a stronger recovery over the rest of the year and into 2013.
Still Waiting for the Growth Godot
The headache emanating from crisis and recession in the EZ (most pronounced in the periphery) is maturing into a chronic migraine. Liquidity programs like the ECB’s long-term refinancing operation (LTRO) merely dull the symptoms temporarily in the absence of growth. The honeymoon phase for new governments in Italy, Spain, Portugal and Greece is over, and prescribed austerity programs, stubbornly geared toward deepening the recession, are now proving to be socially unpopular. At the same time, an excessively strong euro is preventing the restoration of competitiveness and external balance. It is increasingly clear that Greece will not be the only EZ member forced to coercively restructure its public debt. Indeed, a second bailout of Portugal will likely fail to restore market access and prevent an eventual debt restructuring. I would not be surprised, in the event that EZ officials actually attempt a bailout of Spain (and possibly Italy), if such an effort were to eventually fail. The dysfunctional politics within the EZ will come to the fore with the start of the French election season this week, set against the backdrop of increasingly unpopular governments in Greece, Spain and Italy.
In the U.S., the Q4 2011 growth bounce reflected an unwinding of the 2011 external shocks (Japan earthquake/tsunami, Arab Spring, Greece) that depressed production, confidence and hiring intentions in H1 2011, with two-thirds of the 3% Q4 growth rate driven by an excessive inventory build-up rather than final sales. This positive momentum carried into Q1 2012, aided by unusually warm weather, previously lowered expectations on U.S. economic data, and European sovereign and banking tensions held in check by the December and February LTROs. In Q2, we are now seeing signs that the bounce is over, as per forward-looking indicators like the ISM and regional manufacturing surveys. Optimists have emphasized that progress in the U.S. housing market normalization suggests we are in the last leg of the recession, as data on sales and mortgage rates have improved. But the most recent reading of the Case-Shiller index still shows a decline in national housing prices, and another 1.5 million foreclosed properties are expected to come on market this year in the U.S. This, along with lackluster job growth tied to economic uncertainty and removal of fiscal stimulus, will further weigh on house prices. Without significant repair of the housing and labor markets (the latter of which is now showing signs of softening again), there is still no clear driver for the self-sustaining momentum needed to boost U.S. economic growth into a higher gear. Moreover, the expected fiscal austerity cliff in 2013 could start to negatively affect expectations and confidence in H2 2012, potentially dampening spending. Within the same timeframe, the November presidential election brings uncertainty over the policy agenda during the next presidential term, whether the winner is a Democratic incumbent or a Republican candidate bringing a divergent economic agenda to office, with potentially negative impacts for business and investor confidence; namely consumer and capex spending. Gridlock in Congress is likely to continue after the election, as neither party will have 60 votes in the Senate. The U.S. economy remains vulnerable to external tail risks: a shock to U.S. financial conditions from the eurozone crisis; a shock to U.S. gasoline prices from turmoil in the Middle East; and collateral risks from a growth slowdown in China and other emerging market (EM) economies.
In China, Q1 GDP growth slowed nearly one percentage point from 8.9% in Q4 2011 to 8.1% in Q1 2012 (even more—6.0%—on a sequential q/q seasonally adjusted annualized rate basis), for the slowest growth rate since Q2 2009, driven by tightening of government policy, weakness in the real estate sector, a slowdown in infrastructure investment, unusually cold weather, domestic political tensions and declining demand from trade partners (especially the EZ). The only potential growth catalyst in H2 is policy easing, a course of action complicated by inflation dynamics (see my thoughts on the likelihood of this in the next section). In the event of policy easing, Chinese growth may remain closer to 8% in 2012; but this would essentially comprise policy makers kicking the can further down the road for China, and further postponing the necessary rebalancing of growth towards consumption. By H2 2013, the delayed investment bust may sharply slow China’s growth.
The potential and actual growth in the rest of the BRICs (Brazil, Russia and India) is also slowing down as the failure to implement more ambitious structural reforms—which would increase potential growth—is now inhibiting trend growth. All these economies face extensive sticky inflation, as falling potential growth implies that inflation rises sharply any time growth moves above potential, thus forcing another growth-slowing round of monetary policy tightening. To differing degrees, all of the BRICs are now following a model of state capitalism that will not be beneficial for long-term economic growth.
Running Out of Policy Bullets
Global central banks are generally keeping a high bar to further easing, in the context of recent actions. In the U.S., the Federal Reserve has only so far seen one month of slowing economic data, which reflects a lag, and comments from Vice Chairman Janet Yellen last week confirmed the need for further evidence before embarking on any further policy action—obviously, the election season only complicates the timing. The earliest we see another round of unconventional easing from the Fed is June, as I noted last week; the Fed’s actions at that point will shape the macro outlook for H2 2012. FOMC signals that it is reluctant at this stage to wade back into unconventional policy (apart from completing “Operation Twist” in the coming months) suggest to me that it is way too early to start fearing U.S. or global inflation—we are simply nowhere near the scale of intervention that would start reflating advanced economies, while central bankers are increasingly constrained by political pressures. If the economic data in the U.S. surprise to the downside in H1, as we do expect, the Fed will undertake some form of sterilized QE in H2; but the bar for that QE has been raised somewhat by even dovish Fed members.
In Europe, the ECB has a high threshold for further policy intervention—in spite of the common mindset between activist Ben Bernanke and the ECB’s Mario Draghi—with any fluctuations in German and overall EZ CPI likely holding greater weight on the policy outcome than the serious deterioration in the economic outlook in the periphery. (German inflation still remains above 2%, registering 2.1% in March and 2.3% in February.) Additional purchases of peripheral bonds by the ECB on a grand scale may not be easy to restart, as the structural reforms agreed to by the peripheral countries in the fiscal compact have yet to be implemented and policy slippages may occur. The ECB also appears unlikely from implementing another LTRO, as the interbank funding market is no longer frozen. In the meantime, the credit crunch in the EZ periphery banks persists as institutional capital needs prompt further deleveraging and credit contraction.EM central banks are pressured by inflationary forces—Chinese CPI in March rose to 3.6% from 3.2% in February; Indian CPI rose to 7.6% in February from 5.3% in January—and global energy and commodity prices also appear poised to remain high, whether due to the likelihood of failed geopolitical negotiations with Iran, the summer driving season in the U.S., ongoing demand from EM economies or the hangover of liquidity from previous easing in the advanced economies, which fuels speculative demand for global commodities. In general, the “leakage” of G10 monetary policy to EMs and commodities partly neutralizes its already watered-down strength.
On the fiscal side, there is significant drag in the EZ and the UK, while a fiscal austerity cliff in the U.S. approaches in early 2013, which could translate into over half a trillion dollars worth of economic drag, equivalent to two times the size of any post-World War II tax increase or spending reduction. The exact size of the U.S. drag will be smaller than the EZ, but will remain unclear until after the November 6 U.S. election. Note that, with real wages stagnant or falling, disposable income growth in the U.S., and thus consumption growth, has been sustained by US$1.4 trillion of tax cuts and transfer payment extensions (in 2011 and 2012), paid for with another US$1.4 trillion of public debt. The reversal of blocks of this stimulus—however gradual that may be—will remove support from the U.S. economy, weighing on growth.
In Europe, Spanish and peripheral yields have collectively risen hundreds of basis points in the past month as investors weighed growth risks above fiscal deficits and tested the waning resolve of policy officials in these economies to implement the promised structural reforms. But don’t expect a large bailout anytime soon. Remember that to utilize the firewall, Europe needs to get a large number of disparate countries, including the German parliament, to reach a consensus of approval—a process that has proven laborious in the past two years, especially during summer 2011. Even as German Chancellor Angela Merkel appears to be moving towards a grand coalition with the Social Democrats ahead of the 2013 election, it is reasonable to still expect deep reluctance on the part of German politicians to bail out Europe’s indebted peripheral countries. To the south, overtures toward a bailout for Spain open the door towards contagion to Italy, as the firewalls put in place by the ECB and IMF are too small for this scenario—the EZ has only partially increased its firewall, while the IMF is meeting resistance to a significant increase in its financial firepower.
The policy limitations are broad: In spite of massive monetary and fiscal stimulus and backstopping of the financial system in advanced economies since 2008, the EZ and UK are back in a recession, Japan is suffering long-term stagnation and the U.S. can barely grow above 2%. We are indeed running out of policy bullets and the policy artillery has so far failed to restore even potential growth.
Tail Risks Threaten to Become a Way of Life
Investors have become acutely aware that tail risks will endure: Europe could suffer another series of sovereign crises that potentially lead one or several countries to restructure its debts and even eventually exit the EZ after 2013; China could experience a hard landing as inefficiencies in the banking sector spike and rising inflation prompts social unrest, while an investment bust is not compensated by a significant increase in the private consumption share in GDP; and the U.S. could hit stall speed again as housing further deteriorates, growth stagnates, a fiscal drag looms and policy latitude for the Fed and Congress is restricted by worsening gridlock in domestic politics. In the background, there is the potential for serious threats to global security and oil markets as tensions build in the Middle East.
What troubles me is the fragility of the global economy and volatility of the economic and financial systems. Aside from the respite in the past few months, this constant overhang of depressing factors on the global system keeps growth below the equilibrium needed to gain momentum. While short-term tactics can allow investors to ride the markets up or down, the long-term picture remains one of subdued recovery. Any slowdown in H2 has the potential to exacerbate conditions, whether via a growth deterioration or a drop to outright stall speed. The bullish notion that things are significantly improving and that we are moving back to a normalized growth trajectory in the U.S. will be disproven. Many fundamentals are in fact not okay, and 2012 could yet worsen.
Sangeetha Ramaswamy contributed to this note.
Tratto da Roubini Global Economics - 18 Aprile, 2012
Data di pubblicazione: Aprile 2012