Global Sectors Outlook

The domino theory

Just over a year ago, every country and every sector plunged in unison into the global recession. By contrast, the different countries and sectors are now moving in scattered fashion, and by turns, onto the long road out the crisis.

The industrial upturn posted this summer offers an initial illustration of the varied pace of recovery across different parts of the world: whilst some experts are now focusing on a potential overheating in China, the UK in Q3 2009 posted another quarter in steep recession, taking GDP growth over one year to -5.3%. In China, it is true, not only are auto and steel production returning to the pre-crisis levels of the start of the year, but also the rate of growth spurred on by the government’s immense stimulus package is now higher than those achieved in the course of recent years. In any event, the Chinese engine is clearly impacting on trade in Asia. One example of this is the 9% leap in Japanese exports this summer. And, starting from all this, a geographical spread of recovery is taking place in a kind of domino fashion. Asia has already emerged from the crisis, and the other emerging economies will revive over this autumn and winter. In the US, the rise in unemployment will cease in summer 2010. The last zone to raise its head above water – at the end of next year – will be Europe.

Looking at the different sectors, their interdependence is patently obvious, and there was no way to stem the tide. The central domino, since the beginning of the downturn, is the auto industry, due to its impact on intermediate sectors. In Asia, the upturn is also accompanied by the refiring of blast furnaces and by a revival in semiconductor production. In Europe, the improvement in the industrial outlook has more or less paralleled that in the auto sector and in intermediate goods (chemicals and plastics). But with industry yet to stage a recovery, business services (advertising, temporary staffing) are stuck, and slowing wage gains are having secondary effects on household spending. As a result, more or less on a worldwide basis, retail and wholesale trading is entering a long period of convalescence. Lastly, the construction sector will be the final domino: reabsorbing the property bubbles formed will require the longest recovery time. Our sector outlook is inarguably a bit brighter than the one we offered last spring but only some sectors are benefiting from the better climate. As for the others, nearly all of them are still battered by the storms.

Karine Berger
Source: Global sectors outlook - Fall/Winter 2009