the economic recovery?

CMA – 04.14.10

Is This the Global Recovery We Have Heard So Much About?

Dr. Chris KuehlArmada Corporate Intelligence

Chief EconomistNational Association of Credit Management

CMA – 04.14.10

CMA – 04.14.10

What Was Normal Then?

• Most of the last decade was anything but normal. Boom growth in the decade was based on aggressive banks, government incentives, low prices and cheap money.

• The origins of the recession are many and varied but the housing market led the collapse. Attempts to control risk backfired and the credit markets imploded.

• Government engagement in the financial world has reached levels never seen before. Massive bailouts like TARP, stimulus packages over $1 trillion, massive new overhauls in terms of regulation

CMA – 04.14.10

What Changes Now?

• Credit Markets– Some banks have been chastened and many still have significant

levels of toxic debt. More is being added every day with the challenges in the commercial real estate market.

– Most of the risk mitigation systems have been found lacking and now there will be attempts to deal with this through regulation – living wills and bondholder responsibility

– Banks and other lenders will revert to their old school habits – demands for more collateral, more reliable cash flow and a history of profit.

– Bank concentration has actually increased since the crisis – top ten banks now control 70% of bank assets instead of 59%

CMA – 04.14.10

What Changes Now?

• Economy as a Whole– Unemployment rates will stay in a range from 8% to 10% for most

of 2010. This means a period of higher productivity and little wage impact on inflation but fewer consumers and a chronic problem of structurally unemployed people.

– Inflation will not be an issue for most of the year. No pressure from wage growth and limited impact from higher prices. Biggest issue is the amount of liquidity in the system.

– Interest rates will stay low for most of the year. The Fed has little motivation to go after inflation and considerable incentive to keep recovery going. Possibly a rate hike in the latter part of the year

CMA – 04.14.10

CMA – 04.14.10

What Changes Now?

• Global Economy as a Whole– China has led the recovery but now there are serious concerns

regarding overheating. Attempts to cool have included increasing reserve ratios, raising interest rates and restricting lending.

– Commodities demand has sparked rapid growth in nations like Australia, Brazil and Chile.

– Europe may be heading for a double dip recession if the Greek situation gets worse

– Global banking as flattened as in the US – not quite as bad in asia as in Europe.

– Global trade has plunged and may take years to rebound

CMA – 04.14.10

What Changes Now?

• Manufacturing in General– The sectors that have been the sickest in the last year will continue

to have issues – automotive will continue to be the area with the slowest and most fractured growth

– Consolidation will be a major theme in the coming year. Some companies have already left the market through bankruptcy but there will be further restructuring as weaker companies become tempting to stronger ones

– New sectors in manufacturing will be lucrative but speculative at the same time – some high risk opportunities in the energy sector. More expansion into foreign markets but with all the attendant risk

CMA – 04.14.10

What Changes Now?

• Service Sector in General– The sector traditionally provides 80% of jobs and 80% of GDP but

is still dependent on the underlying productive capacity of the country – growth will be anemic for a while

– Continued transition to “giganomics” – people moving from one job to another in search of advancement. Expansion of both outsourcing and “insourcing”

– Serious rethinking underway as far as education is concerned. Backlash from those that have spent a lot to get very little that is relevant in the job market

– Most expansion in service has been in the lower end positions but that will start to reverse this year

CMA – 04.14.10

What Will the “NEW” Normal Look Like?

• Restricted credit markets reminiscent of the “old days”• Wary consumers slow to resume old habits• Weaker dollar and more emphasis on exports• More governmental engagement – mostly regulatory• Very little wage pressure on inflation

• Higher priced inputs but rapid hikes unlikely• Steady rise in energy prices• High profile efforts like health care, global warming likely

to have major impact on economy

CMA – 04.14.10

CMA – 04.14.10

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