This week the Bears were in full form...they were looking for bad news and they had plenty of them to say let us sell pessimism. Over optimism and empty rhetoric of those in power, usually afraid to make hard decisions results in start of business cycles. This time has been no different.
Having said that I do think US needs a more holistic internal analysis of what its economies strengths are and what are the key drivers. As per me having failed to sell the idea that US is recovering and so invest in us (a clear marketing approach however subtle it has been) is start of a downward cycle for its economy. For sure acting as a policeman of the world does help in certain situations but not anymore as Industrial growth and innovation growth are not having US as its epicenter.
Europe is under a different cycle. A few easy going economies started the spiral and expected to be subsidies by EU. EU had to oblige in the interest of the bloc but unfortunately the number of countries wanting help keeps on increasing. So the hardworking Germans will think twice if it makes sense to subsidize the other countries for longer. But clearly consumption indicators and confidence is going down with a stretched financial situation. If a country is in debt then normal rules don't apply unlike an individual is an argument we hear often. But in a globalized environment it does affect as the currency, new investment flows and long term growth gets out the country of in crises as there are options for investors.
Coming to the BRIC economies-they still show strong medium and long term growth driven by middle class. But in connected world there is no escape from short term hiccups. Inflation reduction by interest rates increase is not working out well for them and people in power seem to have no other options but hope that growth slows down taking the heat out. So implicitly they are happy that the growth slows. China has officially said they want slower growth so that rebalancing can happen and more equitable growth is achieved. India has not said it but the government inaction on several critical matters has made this anyway. Once the financial spiral starts then concern for Non performing assets will start, credit will be squeezed and pessimism will spread. How long can be very subjective but for the new economies it will be surely short and recovery can start as early as end of Q4 this year. So driving with brakes and accelerator on is going to be the skill set that defines leaders in this quick business cycle patterns. If Bears wish a long melt down they are in old world..new world business cycles are going to be shorter and swifter with differentiated recoveries in different geographies. This does not mean world is less connected, it only means different parts have different resilience and needs to be managed differently.
- ► 2009 (34)