World Economic Outlook: When will recovery start

1
World Economic Outlook When will recovery start?

• May 2009
• John Walker
• jwalker_at_oxfordeconomics.com

2
(No Transcript)
3
As activity falls off a cliff in the Autumn
4
in all regions
5
and investment demand collapses
6
(No Transcript)
7
surveys point to an end of the worst..
8
Central case is for US recovery by year end
9
The Oxford Economics forecast
10
Scenarios for the global economy

• Deep-V
• Consumers and business retrench sharply to reduce
  debt
• Government fiscal stimulus is delayed, esp in
  Europe, but eventually larger
• Conditions worsen again in financial/credit
  market as defaults rise more than expected
• China falls into recession

• Policy-makers save the world
• Significant additional fiscal injections
  globally, esp China and Germany
• Aggressive (un)conventional monetary policy
• Confidence restored quickly and banking frees up
• Return to trend growth in 2009H2

Policy effectiveness

• Deflation
• Falling asset prices prove a further drag on
  recovery in banking sector
• Unemployment rises sharply and large output gaps
  open
• Monetary/fiscal policy are not effective as
  deflation grips
• Protectionism measures enacted
• Economy declines in 2010 and beyond

• Oxford Forecast
• Recession bottoms in Q3
• Significant fiscal injections and further
  monetary stimulus
• Oil prices remain low
• Credit markets normalise by end-2009, helped by
  further bailouts
• Confidence returns and growth picks up in late
  2009/early 2010

Recession severity
11
A different world over the medium term

• Financial services will not grow at same pace
  from now on
• And whist manufacturing will recover sharply at
  some stage it is unlikely that it will grow
  faster than it has done over last 5-10 years
• So other service sectors must take up the baton?
• Travel and tourism has the opportunity to be one
  of the gainers

12
Summary

• The synchronised nature of downturn and its
  uniformity across countries and sectors is
  frightening.
• Still great uncertainty when recession will end
  but our central view is that likely by second
  half of this year.
• Despite travel and industrial sectors globally
  being in relatively good shape at the start (with
  the notable exception of US car manufacturers)
  these have borne the brunt of falls in sales as
  consumers and businesses conserve cash.
• Good reasons for areas of manufacturing like
  mining and general machinery to lead the recovery
  but tourism has great opportunity to be a big
  gainer over medium term.