Expect the unexpected

The future usually begins before you have prepared for it. This saying certainly applies to 2009, which brought us two completely different semesters. In the first half of the year most economies in the world were still on a downward slope, grappling with the consequences of the banking crisis that destroyed large amounts of financial wealth and created cathartic uncertainty.

Forecasters in both the public and the private domain adapted their outlooks to the steep slide in indicators and completely overshot on the negative side. A V-shaped recovery was seen as a crazy assumption, most forecasts resembled an L-shape (see Financial Market Outlook “No L on Earth”, March 2009). Well, things turned out differently. In the months of the second quarter the uncertainty diminished, helped not least by the massive policy stimulus that was administered on a global scale. The dramatic decline in world trade and international exports came to a halt, the banking system stabilized and some depleted inventories had to be replenished. So, quite unexpectedly for the majority of observers, the major economies turned the corner and embarked on a clear recovery in the second half of 2009 despite rising unemployment. This once again illustrated that cyclical forces in the economy are hard to forecast and that economists tend to overstate all structural and fundamental problems in cyclical downturns.

So what does this imply for 2010 and the years thereafter? Well, for the beginning of 2010, that seems quite clear, the global economy will retain its recovery momentum. And for 2010 as a whole, we can expect the fiscal injections and the lagged effects of monetary stimulus policies to keep the economies afloat.


Dr. Michael Heise

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