Tuesday, January 31, 2012

A glimmer of light for 2012? Report from the Financial Standard Chief Economists Forum

Playing to a packed house of 800-plus financial bods were the five panel members addressing this year’s Financial Standard Chief Economists Forum at the Westin Hotel in Sydney this morning.

As everybody’s favourite economist, Master of Ceremonies Don Stammer, pointed out in his introductory remarks, macro-economic forces are playing an arguably unprecedented role in the shaping of world financial markets – which could explain the record attendance at this year’s event.

Five snappy presentations provided audience members with a range of opinions about cause, effect and, most importantly, future direction of the world economy in 2012, along with some unexpected laughs.

Slow growth to continue
First off was Richard Gibbs, Macquarie Group Chief Economist, who painted a contextual picture of market performance that broadly heralded a continuation of the relative gloom that has dominated the world landscape. He pointed to dreary Aussie (and other) equities performance, strong bond performance and the likelihood of more of the same if the less-than-rosy conditions that generally follow an inverted yield curve come about. Accordingly, his general forecasts fall in line with the most recent from the IMF and others of slower-than-previously-predicted world and local growth.

Throw away the Prozac
Then in bounced Bob Baur, Global Chief Economist from Principal Global Investors, who with irrepressible energy posed the question: will investors need to continue their Prozac in 2012 – or can they begin to wean themselves off it? Focusing on the US economy, Bob was decidedly more bullish in his reading of the outlook. He points, among other things, to increases in US manufacturing, productivity and a gradual upturn in employment as signalling a definite recovery – no double dip – in the US – with corresponding flow-on benefits to other world economies.

Hello world …
Speaker three was the peripatetic Tim Harcourt, Chief Economist of Australian Global Economics, Australian School of Business UNSW. A.k.a The Airport Economist, he took us on a whirlwind continent-by-continent tour (complete with slideshow – gosh that man works hard) in which he summarised regional economic conditions and likely outcomes from their interplay. Again, he took a more bullish global view, highlighting the burgeoning of consumption in emerging markets and the continuing importance of China and India to Australia’s own prospects. Along with the other presenters, he was at pains to point out that despite the scare- talk of China’s ‘cooling off’ and its potential effect on our own - and other - economies, some perspective is required. To paraphrase Bob Baur, China’s growth is merely moving from white hot, to hot – tales of its demise are decidedly exaggerated.

An overdue rebalancing
Next up was Clifford Bennett, Chief Economist from the White Crane Group, who took a truly macro view in which, once again, there was more than a grain of optimism. His view was that the time is well past due to forget the models and preconceptions of the past. Instead, global economic movements such as the decline of first world economies in general and the US dollar in particular are signs of the inevitable long term rebalancing of markets in the face of dramatically changed world conditions. Under this view, emerging markets are in fact ‘emerged’ and need to assume a new more central position in global economic reckoning. He also pointed out that it would take only a few pleasant surprises – for example, an uptick in US performance and the Eurozone managing to scrape through its debt issues – for the de rigueur doom and gloom to be replaced by something a little more gangbusters.

The ‘P’ word
To wrap up, stalwart Saul Eslake, Chief Economist from Bank of America - Merrill Lynch Australia, took us through some more contextual facts and figures to highlight some more disturbing trends already alluded to by a number of the other speakers. It seems that these are likely to occupy more and more of the upcoming national economic debate and it may be well past time. Specifically, he flagged plummeting productivity as a key structural issue facing first world countries in general and Australia in particular. His figures revealed not only that ours is at an all- time low compared to that of the US; he also busted the myth that such drop-offs in productivity are related to the nature of our resource-heavy economy and the lengthy lag times, effects of high commodity prices on measures (volume v. value)  and so on. Along with a number of the other panellists, he sounded a warning that this country needs to make intelligent use of the resources boom to ensure it provides long term benefits across the whole of the economy or risk a crushing fall when it eventually – and it’s not an if, but a when – comes to an end.

Onward and upward?
The Q&A session that followed included  some veiled debate and (potentially lively) discussion about productivity and debt; the political will or lack thereof to address both; the issue of the equitable distribution of the proceeds of increased productivity, and the virtues or otherwise of a regulated versus a deregulated labour market (Tim Harcourt pointing out that real wages in the US have not increased since the early 1990s and the divide between the haves and have-nots continues to yawn …) But that’s another story for another day. 

What to watch in 2012? General consensus was that key indicators include productivity, purchasing, China GDP and employment. Falls in any of the above may lead to a downward revision of world prospects for the year ahead. So fingers crossed, everyone.

Guest blogger, Kaitlin Walsh, is BlueChip Communication's Director of Media and Content

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