BNP Paribas: A Historical Recession (Part I)

The Chief Economist Philippe d'Arvisenet of BNP Paribas gives a rather in-depth insight in the current state of major economies.

Which factors could lead to economies pulling out of recession? Philippe writes:

Obviously, they are the fiscal stimulus and accommodating monetary policies.

The decrease in interest rates, while it should not be expected to trigger a fresh wave of private indebtedness, even as priority is given to cleaning up the financial situation (calling to mind the image of monetary policy pushing a string), leads to a reduction in interest expenses in the countries where households are massively indebted at floating rates (UK and Spain for instance). Likewise, a decline in long-term mortgage interest rates has resulted in a fresh wave of mortgage buybacks in the United States.

Global liquidity is still growing at a robust pace. The fact that current-account surpluses have disappeared and there has been an inversion in capital flows have led to growth in official reserves and monetary creation coming to a stop in many emerging countries. Monetary creation now results from the quantitative policies conducted by the central banks of advanced countries.

The downward normalisation of inventories, which started from a high initial level, is dampening economic activity. Once completed, the retrenchment in inventories will no longer weigh on business conditions.

Lastly, the decline in commodity prices (first and foremost energy prices) is leading to rapid disinflation that, in view of the downward stickiness of nominal pay, is substantially boosting the purchasing power of incomes (see below). A comeback by inflation is not on the cards. The negative output gap is widening throughout the world and will continue to do so next year. This is because, even if growth returns, it will remain far lower than its potential in 2010.

And here is the economic research on emerging markets by BNP Paribas.