Recovery from abyss...

GDP and industrial activity data emerging from across the globe suggests that may be spring season is in the offering globally. However early in 2009, the global economy was staring into the abyss. Only in the middle of the year did green shoots appear: leading indicators stabilised and later improved. As the year wore on, the green shoots blossomed: economies stabilised and in rising numbers returned to growth. Generally, what is seen is that deep economic downturns are followed by strong recoveries. However, there is also the evidence that recessions that are accompanied by financial crises tend to be followed by subpar recoveries. I think that we are facing such a sub-par recovery globally at this moment.

Private debt has been replaced by government debt, particularly in the US and the UK and to a lesser extent in the eurozone. The financial sector is under government pressure to trim down. Regional outlooks differ though. Emerging markets did not suffer in the recession the way developed economies did and their prospects are relatively bright in my view. In the US, consumers are struggling with high debts and low income growth, while the eurozone may not benefit from an export led recovery the way it has in the past. Thus, what I expect is an initial bounce in economic activity to peter out over the course of 2010, although I do not foresee a double-dip recession. May be we could see stabilization in 2010, but am quite confident that we would not be able to match returns of 2009 wherein we got anywhere between 50-120% return from the emerging markets (adjusted for dollar rates).