Get this. Jonathan Wilmot, chief global strategist at Credit Suisse, reckons that Europe is set to lead a rebound in global growth this year. He and his team are saying BUY Spanish and Italian bonds, and probably equities as well.
While a note dispatched to CS clients this week contains a few escape chutes, the core bullish argument is broadly as follows:
The revival in risk since last autumn is so far very much in line with the recoveries from the “Deep Panics” of 1982, 2002 and 2008/9 – and those panics were followed by rallies of 50 per cent over more in global equities within 18 months. Despite what you read on sites like this, the eurozone is not going to fall apart; instead some sort of pro-growth compromise will be cobbled together. There’s already consensus on the fact that austerity alone cannot work. The confidence shock at the end of last year hit Europe the hardest. But while production slumped, aggregate demand didn’t. Hence any uptick in demand now will set up the need for significantly higher European production. Wilmot’s full contrarian thinking is available in the usual place, but here’s a taste…
No Pain without Gain?
In terms of what this means for Risk Appetite and World Wealth, one might say that the bigger picture remains broadly consistent with the history of recoveries from previous deep panics. You may have noticed that our projections for global demand growth over the second quarter are for a slight slowdown, but that overall we still see global goods demand remaining on the same broad trend as it has been for most of the past two years.
We don’t think that is implausible, unless total disaster unfolds at the very same time, that politicians and central banks are for the most part pretty focused on supporting growth rather than the opposite. And if demand dos not falter, our analysis suggests global production will continue to grow – and indeed will accelerate somewhat in the summer. If that is correct then we can immediately draw two conclusions. First, global IP will remain on a fairly similar path to that which followed the deep panics of 2002 and 1982.
Second, seen in a different way, we can say that our slightly above-trend forecast for global IP growth is consistent with the current correction being followed by an even bigger gain later on.
