Charting The Global Perfect Storm And SocGen's Economic "Stall Speed" Matrix
Zero Hedge first mentioned the phrase "stall speed" while discussing the Q1 US GDP, which we predicted would translate into a disappointing print for Q2, eventually leading to a negative number in Q4. This was about 4 months ago. Since then our GDP prediction has been validated, but we had yet had to see "stalling" make the vernacular. That has now changed, following the release of a brand news report by SocGen which focuses on the phenomenon of... global stall speed and how specifically this is affecting the key investment verticals around the world as well as what the possible policy responses are. But perhaps more interesting is SocGen's succinct explanation of how the world now finds itself in a global perfect storm, and whose ending will likely be very much comparable to that of the eponymous movie starring George Clooney.
Below is the latest stall speed matrix from Michala Marcussen:
But perhaps more interesting is this summary chart which shows just how the US and Europe found themsleves in a perfect, self-sustaining storm, from which there increasingly appears to be no way out.
A perfect storm hit this summer and, as a result, the US and Europe are growing at near-stall speed. Outright recession, however, needs a trigger, which we believe will remain absent. But, taming burgeoning public debts on both sides of the Atlantic will take time and we forecast a prolonged period of slow growth for both the US and Europe, particularly as the dynamic emerging economies slow to more sustainable growth rates. Most critical to our outlook is the assumption that the euro area will move quickly to ratify the new powers of the EFSF and deliver additional measures to underpin confidence in the EMU. In the US, we assume that the expiry of the payroll tax cuts and extended benefits will both be postponed to end-2012. Finally, we expect G4 central banks to deliver an extended period of low rates. We see the first rate hike from the BoE only in early 2013, followed by the ECB in late 2013, the Fed in early 2015 and the BoJ only in 2016.
SocGen is right about one thing: the recession trigger is absent because the depressionary trigger is going gangbusters. When can we stop pretending the Fed-inspired bear market rally, which translated in a small blip in global GDP was nothing but a small hump in the depression started back in 2007 and likely to continue for many more years?
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