24 August 2010, German Chamber of Commerce and Industry in Japan
Is the world heading back into recession? That was the big question posed at a German Chamber of Commerce and Industry event at The Westin Tokyo last month. There to answer it with a keen-eyed look at the risks facing the global economy was Dr Joerg Kraemer, chief economist of Commerzbank.
The picture is changing almost every day – and mostly for the worse. As Arno Tomowski, president of the German Chamber, noted in his introduction: “When we planned this event we didn’t expect [the economy] to still be in such a critical situation.”
Yet Kraemer’s analysis of the situation was surprisingly optimistic. “I don’t think we will fall back into recession,” he said, forecasting a “soft patch” instead.
In Germany at least there is some real justification for optimism. Not long ago the “sick man” of Europe, Germany is now a powerhouse, significantly outperforming other European economies. Nor is the situation in the United States quite as bad as many people believe, Kraemer argued. The recent upward revision of the United States savings rate, and the fact that “the US economy has done a lot to balance its imbalances” are reasons to doubt there will be a double-dip.
China is another worry, and “the big risk is house prices,” said Kraemer. But incomes in China have been rising faster than property prices. “I hesitate to call this a broad-based bubble as in the States,” he said.
While the picture is far from pretty in the eurozone, Spain, Italy and Greece have already “over-delivered” through stringent measures to reduce budget deficits – something not yet recognised by a “cynical” market, said Kraemer. Next year will be critical for the European economy and much will depend on whether the weakest countries are able to sustain reform. The euro itself is safe, but he expects the number of EU members to be fewer five or 10 years from now.
Over the short term, “we will continue to be in a low-growth environment” and “the era of low-interest rates is by no means over”. Will the euro remain weak? Yes, believes Kraemer, at least until the US economy and the dollar regain strength. And cautious investors will continue to “flirt with the double-dip”.
And what of Japan, asked one attendee looking for a local perspective? Kraemer had little to say, other than that Japan and Germany have some things in common; both suffered an unusually sharp downturn, then export-led recoveries – and both are heavily reliant on China.
Clearly the third-largest economy in the world played a relatively minor role in the Commerzbank analyst’s account. Perhaps that was the most telling comment on Japan’s predicament.