Conference Presentation, Panel
MI Summit 2013 - London: Global Overview: Is Confidence Returning?
Milken InstituteWillem Buiter, Ann Cairns, Ed Daniels, Alexander Friedman, Tidjane Thiam, Gillian Tett, Alex Freeman
- The U.S. economy is described as being in a genuine recovery driven by private sector deleveraging, residential construction, and low-cost shale energy, with expectations that political gridlock will not prevent a default due to constitutional emergency powers; however, risks include infrastructure decay, minimal private capital formation outside energy, and potential long-term damage to innovation confidence if government dysfunction persists.
- The U.K. is projected to achieve consumer-driven growth of approximately 3%, outperforming the Eurozone, by leveraging its open economy and acceptance of human capital, though short-term strains on public services like the NHS are anticipated alongside a delayed shale gas commercialization timeline.
- The Eurozone is characterized as having merely a "pulse" with growth expected to remain below 1% next year, unable to recover seriously until banking sector and peripheral sovereign deleveraging occur; critical milestones include asset quality reviews, balance sheet assessments, and stress tests scheduled for October or November of the following year, with recapitalization required post-tests to restart growth.
- China is aiming for a sustainable growth cycle of 6% to 7% driven by urbanization, a massive aspirational middle class, and a shift to electronic payments, managing a credit bubble with savings rates at 50% of GDP; while a soft landing is anticipated for the next two decades despite a peak in the working-age population, challenges remain regarding the rebalancing toward household consumption and potential instability from foreign capital dynamics.
- Africa, particularly Sub-Saharan regions, presents a demographic dividend with a ratio of 15 workers to one pensioner and GDP growth that tripled to $2 trillion over the last decade, driven by infrastructure investment, financial inclusion, and urbanization, though growth faces volatility risks from security instability in North Africa.
- Japan and the Eurozone are identified as structural dark spots where aging demographics (with the fastest-growing age group being over 85) and high debt-to-GDP ratios pose tail risks of stagflation or a vicious cycle unless political leadership successfully pivots toward emerging markets.
- Global growth over the coming decades is expected to be driven by demographic shifts, specifically Asian urbanization and Africa's youthful population, while energy demand is projected to double in the next 40 to 50 years, creating opportunities for U.S. energy exports and capital-intensive industries.
- Banking crises are viewed as cyclical events occurring every 10 to 15 years, with U.S. banks largely recapitalized but European banks still requiring significant cleaning up; the narrative that economies can recover from such crises in two to three years is deemed unrealistic, with full recovery taking six to eight years.
- Emerging markets are vulnerable to economic slowdowns driven by export performance, with most Asian nations running current account surpluses except India and Indonesia, and their growth is heavily dependent on sustaining the U.S. recovery and avoiding the negative impact of U.S. rate increases.
- Political instability in Europe, including the rise of the extremes and election delays (such as in Germany), creates a toxic cocktail that hinders necessary action, while the U.S. political market jolt is framed as a potential buying opportunity for long-term investors given that markets have already priced in the turmoil.