Global
Top Economic Reports
March 11, 2013

By Global Economic Team|

Economics & Strategy: Framing Europe After the Italian Elections: Our base case is that Italy is able to form an (albeit weak) government, keeping our economics and strategy base case at 'eurozone crisis contained, not resolved'. We assign a 30% probability that the 'Crisis' stage of the CRIC cycle returns, although with less intensity than in 2011 or 2012. Daniele Antonucci.

US Economics: Crunch Time: Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates, which in turn make debt burdens more severe. The result will then be higher budget deficits and debt levels, possibly leading to a fiscal crunch - a tipping point in which government bond rates shoot up and a funding crisis ensues. Vincent Reinhart.

European Loans & Deposits Tracker: Fragmented banking markets and weakening corporate lending. Corporate credit conditions remain tight despite OMT/LTRO:
- Corporate lending has weakened materially as demand falls off: Despite an easing of some funding constraints, demand has fallen materially, particularly in the South.
- But fragmentation constraints persist: Italian and Spanish corporate lending costs a new wide vs German. It is materially more expensive for Italian and Spanish companies to borrow from their banks (a new wide vs core Europe) as banks focus on repair, leading to higher average funding costs, which we do not see reversing in the near term.
- Eurozone ‘credit impulse' remains weak, a key risk to growth, since ~80% of corporate funding is performed via bank lending channels. Disintermediation is a meaningful opportunity and healing pathway, but we think this is a significant release valve only for IG corporates.
- More policy response needed? The NSFR remains a hindrance to SME and longer-dated lending. Specific SME intervention could be considered as well as an extension of 3-year LTRO.
Investment conclusions: The euro crisis is contained, but not resolved. Elga Bartsch.

Sunday Start: What Next in the Global Economy (MARCH 03, 2013): Yes, I finally hiked up Table Mountain in Cape Town last weekend (hence no Start last Sunday), and it was spectacular. We took the Kasteelspoort route, which gets you to the top in about 3-4 hours and offers plenty of scenic views of Camps Bay, Lion's Head and Robben Island.  Testament to my severe professional deformation, the height profile of the hike reminded me of the shape of the economic recovery or the evolution of the S&P 500 in the 3-4 years since the 2009 trough: a first relatively steep ascent, followed by several small valleys you have to cross on the ascent to the peak. Joachim W Fels.

Emerging Issues: Could Sustainable US Growth Be Bad News for EM? Getting to sustainable growth: Resilient corporates, increased competitiveness and the ‘shale revolution' all point to the possibility of a manufacturing renaissance in the US economy. If it happens, the reindustrialisation of the US economy could deliver sustainable growth, something that has usually led to strong EM growth as well. In today's note, we explore why a scenario where the US reindustrialises could be bad news for the EM world. Manoj Pradham.

India Economics: F2014 Budget: A Neutral Event: Budget Measures Largely Neutral From Macro Perspective. We were watching for two key things in the budget including government efforts to cut fiscal deficit and to a lesser extent, measures to encourage private investment. While we believe that the fiscal deficit will be higher than the government estimates, efforts to consolidate the fiscal deficit will likely remain on track going into F2014. There were also positive measures that had been announced in the budget that would encourage investment. India Economics Team.