Tuesday, May 22, 2012

Global recovery robust – Part II

Global Recovery Robust – Part II

In my analysis last week, I talked about how global recovery is robust and the fear is unfounded.

Two key points from that analysis were:-

  • Apart from the Eurozone, the major global economies, comprising more than 70% of GDP, are in various stages of recovery or bottoming out.
  • The fear factor due to the situation in Greece has become so prevalent that the likelihood of a robust global recovery is being overlooked.

There have been a slew of reports during the last few days that seem to confirm my analysis.

Jim O’Neill : US Recovery Improving

Here’s an interview with Jim O’Neill in CNBC Market ‘Freaking Out’ Over Greece, J.P. Morgan- O'Neill :

“After swinging through a cross-country tour of the U.S. last week, the London-based chairman of Goldman Sachs Asset Management said he saw an economy that is improving, despite what some of the indicators show.”

Reports : China Growth Stimulus Likely / 2012 GDP Growth above 8%

Here are some excerpts of a story in Bloomberg - Wen Growth Pledge Spurs Speculation of China Stimulus :

”Wen called for “putting stabilizing growth in a more important position” and didn’t mention concern about inflation in remarks published yesterday by the official Xinhua News Agency. China may announce stimulus actions in the near term, according to a front-page commentary today in the China Securities Journal, which is published by Xinhua.”

Of course, no stimulus has been announced till now, but it would be fair to assume, given its past track record, that China is likely to take decisive action to spur growth. And the consensus view amongst World Bank and research houses like Morgan Stanley, Goldman and J.P. Morgan is that China would be able to engineer a soft landing and maintain an 8% plus growth rate in 2012. And this comes after they pared down their growth estimates when China reported a 7.9% growth rate for the first quarter of this year.

GMAC : Continued Growth in Hiring During 2012 for Management Grads

Maketwire did this story based on a survey done by the Graduate Management Admission Council (GMAC) - Job Market for MBAs Improving; Pay Premium Remains : ”On average, companies in the Asia-Pacific region and the United States expect continued growth in hiring in 2012 for all management graduates, whereas European companies project that hiring levels in 2012 will be similar to what they saw in 2011.”

"These results provide strong evidence of the continued global market recovery, which is also matched with the feedback received from EFMD's business school members," said Eric Cornuel, director general and CEO of EFMD, a key partner in conducting the recruiter survey along with the MBA Career Services Council.

What about Greece?

My own analysis suggests that Greece, a minuscule economy with less than 0.5% of the global GDP, cannot take down the world.  Furthermore it almost seems as though markets are ready for a Greece exit and might even be hoping that it happens! (See - Greece bank runs : a precursor to exit?)

And these viewpoints about Greece now seem to be picking up momentum. Here’s a report in Bloomberg today: A Greek Exit? Euro Zone May Be Ready.

“It is increasingly conceivable that Greece may leave the euro zone, not just because of its own political dysfunction but also because the consequences of such an exit for the rest of the Europe and the global economy no longer seem quite so scary.”

There is no doubt that a Greece exit would have a negative impact on growth and markets, but I doubt it’s going to cause a global slowdown. My sense is that it would be really bad for Greece, bad for Europe, just a tiny bit bad for the U.S., but have near zero impact on global growth.

The bottom line is that major global economies are in various stages of recovery or bottoming out and it seems that the recovery would continue, Greece or no Greece.