Salient to Investors:
Alice Rivlin at Brookings said the lesson of Europe is, don’t wait until you’re in a crisis to act and austerity is not a good prescription for weak economies. Rivlin said the US has the luxury the Europeans don’t, no pressure in the financial markets.
Mohamed El-Erian at Pimco said the fiscal cliff would be a self-inflicted, disorderly contraction that would push the US into recession. El-Erian said policy makers need to promote growth as well as curbing deficits.
Laurent Fransolet at Barclays said belt-tightening is a big theme globally and there will be more focus on the US, which has done very little fiscal consolidation.
Publicly held debt is 67 percent of GDP versus 36 percent in 2007, while the deficit for the fiscal year ended on Sept. 30 was 7 percent of GDP.
The EC estimates Greece will run a budget deficit of 5.5 percent of GDP in 2013 versus 15.6 percent in 2009: Ireland’s will fall to 7.5 percent of GDP versus a peak of 30.9 percent in 2010; and Portugal’s will be 4.5 percent from 10.2 percent in 2009. The EC predicts the Greek economy will shrink for a sixth straight year in 2013, contracting 4.2 percent after 2012’s 6 percent slide, Portugal will lose 1 percent, and Ireland will grow 1.1 percent.
Mark Zandi at Moody’s Analytics said the experience of Europe’s peripheral countries shows that US policy makers should tackle America’s swelling debt before investors force them to do so.
The EC said Britain’s GDP will grow 0.9 percent in 2013 versus shrinking 0.3 percent in 2012. Nariman Behravesh at IHS said Britain learned the hard way that you can do a lot of damage if you don’t phase in fiscal consolidation, especially when the economy is weak. The EC says Greece’s debt will rise to 188.9 percent of GDP in 2014 from 176.7 percent in 2012.
The IMF review of recent austerity measures in 28 countries found that the steps have had a bigger negative impact on their economies than traditional macroeconomic models had predicted.
Carl Lantz at Credit Suisse sees the 10-yr yield at 1.75 percent at year-end and 2 percent in 2013 on a pragmatic resolution of the budget battle.