DEUTSCHE BANK: 4 REASONS TO REMAIN BULLISH
Deutsche Bank is falling for the double dip chatter. Their analysts believe we’re simply in a mid cycle slowdown. In a recent note they listed 4 reasons why this isn’t a reason to get overly bearish:
“First, the move towards fiscal policy tightening appears generally to be relatively measured. This year, we expect the euro area and China to run somewhat expansionary fiscal policies while the other countries are likely to embark on some fiscal restraint. Next year,
almost all countries are forecast to tighten policy, but the contractionary fiscal impulse seems fairly modest in most cases. The UK does show a substantial fiscal drag in 2011, equal to about 2-1/2% of GDP, and in the US it reaches 1-1/2% of GDP, but for other major areas (euro zone, China, and Japan) it is generally 1% of GDP or less, not enough to induce a serious downturn, in our view.”
Second, while fiscal policy is tightened, we expect monetary policy to remain expansionary. Earlier expectations of an exit from the low interest rate and non-standard monetary policy have been shifted well into 2011 (affecting growth only as of 2012).
Third, with discretionary spending on durables and structures already having fallen to recent historical lows, this key driver of economic downturns has much less room to be compressed than it did before the crisis began (Chart 3). Indeed, this is one reason double dip recessions are so rare. The more and the longer such spending is compressed, the more pent-up demand builds to support the eventual expansion. Durable goods that have worn out eventually need to be replaced.
Fourth, with pent-up demand beginning to show through into consumer and business spending, we believe that the economy is developing sufficient momentum through 2010 to deflect the upcoming headwinds to a significant degree. A positive feed-back loop between investment, employment, and consumption seems to have emerged in most major countries.
Source: DB
Deutsche Bank not banking on U.S. recession
Monday, December 10, 2007
“Our base case is no recession in the U.S. and a rebound in growth during the second half of 2008, with significant upside for equities (+10 per cent)”
http://www.theglobeandmail.com/globe-investor/markets/markets-blog/deutsche-bank-not-banking-on-us-recession/article802437/
They seem not to have ever read even a review of Kenneth Rogoff and Carmen Reinhart’s This Time It’s Different.
I struggle with the thesis, mostly the disc spending chart as a % of GDP.
The data doesn’t rhyme with what we now know to be the discretionary spending excesses of the latter part of the past decade, by and large facilitated by housing.
In fact, you would have never known from the chart that we experienced a super credit bubble induced, consumer discretionary spending boom only a few years ago.
Moreover, I think we’ve all seen the chart depicting the cross over of personal spending relative to personal income ex gov’t transfer payments; that also seems to be at odds with DB’s data here.