Global Market Rebound Now

While real global economic growth during calendar year 2009 will be negative, a solid rebound seems on tap during 2010, with realeconomy-cube growth exceeding 3.0%. Better performance is expected during -2011. Even so, rising unemployment during 2010 in many developed and emerging markets will, unfortunately, be the norm.

United States of American – New York

The American economy returned to growth during 2009’S third quarter, a welcome departure from an extended period of painful economic contrac­tion. While the return to growth is obviously a positive development, it does not suggest that problems with housing, commercial real estate, rising unemployment and continuing job losses are behind us.USA

The 3.5% real annual growth pace during July to September compared to a 6.4% real annual rate of decline during 2009’s first quarter and a 0.7% real annual rate of decline during the second quarter. The six-month swing from the first quar­ter decline was the largest six-month turnaround since 1980. The U.S. economy shrank 3.8% after inflation in the 12-months ended in June, the most painful decline since the Great Depression.

When all is said and done, the official scorekeeper for the economy, the National Bureau of Economic Research, will likely make a call next year that the U.S. recession officially ended this past summer. Even so, the U.S. economy is not off to the races. The economy is expected to maintain a modest growth pace during the fourth quarter, as well as during 2010 and 2011. A key to sustainable growth will be how the private sector rebounds consumers and businesses with the government then (hopefully) reining in its enormous expansionist ambitions.

Japan – Tokyo

Japan remains the world’s second largest economy. Rapid Chinese growth will eventually reverse that order. Japan’s massive Japan_Flageconomic growth in the 45 years following WWII gave way to “the lost decade” of the 199os. Some would argue it has now lost two decades, with anemic growth during the current decade as well.

The Japanese economy plunged at nearly a 14% annual rate during the six months ending in March 2009, tied to major weakness in the global economy and a severe decline in Japanese exports. However, the economy staged a rebound during the two subsequent quarters, led in part by massive government stimulus. Japan’s 4.8% annual growth rate during the third quarter exceeded expectations.

Japan today is a nation expecting only modest economic growth during 2010, ongoing deflation, record high unemployment approaching 6.0%, and the budget implications of an aging and declining population. Japan’s government debt is by far the highest of all Western nations, likely to reach 227% of gross domestic prod­uct in 2010, according to the Interna­tional Monetary Fund. Confidence in new political leadership is lagging.

China – Beijing

China_Flag_MapEconomic growth picked up speed in recent months, following a sharp slowing late last year and during 2009’s first quarter. A powerful 9.0% growth pace seems likely during 2010, again leading the world’s major players.

China felt less impact from the global downturn of the past year than did other major economies. A solid recov­ery in manufacturing output and exports is now in place.

Even as strong economic growth has returned, major challenges remain. The Chinese followed many nations with its own $586 billion stimulus program. Efforts to unwind such stimulus will be challenging.

In addition, Chinese efforts to keep the currency, Ren Min Bi, largely fixed to the dollar have led to nearly a 3o% rise in the money supply this year, resulting in rising inflation concerns and enormous flows of outside funds into Chinese assets. Record prices for apartments and a sharp rise in the primary stock index have led to rising concerns about an asset bubble.

The Chinese leadership will remain under intense global pressure to allow the undervalued RMB to rise in value, in part to reduce the level of exports and help build domestic demand. Even so, the Chinese will make such adjustments on their own timetable.

India – New Delhi

A return to the powerful 9.0% annual growth pace recorded prior to the global downturn is the goal of Indian leadership in coming flag indiayears. While such rapid growth may not occur soon, the nation’s potential to challenge China for Asian economic leadership remains valid.

India joined China and Indonesia as the only Asian economies to escape severe recession during the past year. Most forecasters see India growing roughly 7.0% in 2010, followed by slightly stronger performance in 2011, in part based upon expectations for a wetter monsoon season.

A greater share of Indian economic performance is comprised of internal demand—consumer and business spending—than is found in neighbor­ing China. As a result, the Indian economy is less dependent upon exports than is the Chinese economy.

Like so many major nations, much of recent growth has been fueled by massive government spending and highly accommodating monetary policy. As with other nations, India will need to “exit” such aggressive strategies before debt levels and inflation pressures become burden­some.

Europe

The most painful recession since WWII is over. A modest 1.5% annual economic growth pace returned in the third quarter for the 16 nations who use the euro currency. As with its counterparts around the globe, a revival from serious recession was fueled in part by rising exports and major stimulus programs across various European nations.

europe_flag2While European economic growth has returned, its fragile and limited nature will keep consumer spending at modest levels. Increased govern­ment spending and aggressive monetary stimulus provided by the European Central Bank will need to be ratcheted back in due time.

European economic growth tradition­ally trails that of the U.S. and Asia. No exception is likely this time around the economic cycle. One constraint to European growth will be the stronger euro versus the U.S. dollar (and by pegging, versus the Chinese’s RMB as well…see China above). German exporters, in particular, are fearful that euro strength will limit the ability of export industries to contribute to a return to economic growth.

The neighboring United Kingdom remains mired in recession, with only modest growth prospects in coming quarters. Former euro sector top performers Ireland and Spain, who saw home values skyrocket in recent years, remain stuck in recession as well.