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Video transcript: Patrick Artus - Economic Outlook for 2013

Experts' views: Patrick Artus - Economic Outlook for 2013 (Vidéo)

[Incrustation]

Economic Outlook for 2013

[Patrick Artus]

And then, we move on to 2013. The situation at the beginning of this year is quite obvious: the optimism triggered by the creation of institutions in 2012, the European currency snake, the potential actions of ECB, the first steps to managing bank crises at European level, it’s all there. We are continuing to see a major improvement of financial markets, i.e. equities, bonds, public debt. This optimism in the middle of the euro zone crisis is not limited to the euro zone as it is reflected in the emerging markets. We are surfing on the wave of optimism that characterized the second half of 2012. This is due to the institutional progress made in Europe with the strong belief in financial markets that the crisis in its acute version is over. So one of the first key questions in 2013 is: is it true that there won’t be any more strong crises in the euro zone? In my opinion, investor optimism is maybe a little too overrated: it’s true that the probability of a new financial crisis is pretty low, but at the same time the euro zone economies continue to decline. We are expecting negative growth in Spain, Italy, now France, Portugal, Greece. Unemployment is reaching high levels in all these countries, corporate investment is declining, and the banks’ situation is worsening with increasing numbers of household and corporate defaults. Interest rates, although they have gone down, are still very high for private sector companies. So, we can say that we have managed to set up financial stability mechanisms that are strong enough to prevent country default or very serious bank crises, but we haven’t achieved enough cooperation between countries to generate growth and restart real economy. Nobody’s helping Spain, with its 27% unemployment rate, to create new jobs and to create more investment. There is no solidarity concerning the real economy of job creations. A few things were done: for example, investment banking is giving a little more money to invest, but it is not much compared to the size of the problem of countries such as Spain, Greece or Portugal. The nature of the crisis has changed. We no longer expect it to be caused by finance, but we could have a financial crisis caused by investor concern over unemployment, negative growth, social tensions, and the political risk all this may generate. I am not as optimistic as the financial markets. I think that if a Central Bank can prevent a liquidity crisis, there’s not much it can do to lower the unemployment rate in countries where the housing bubble burst, such as in Spain or Ireland.

[Incrustation]

Chinese and Japanese economic stimulus

[Patrick Artus]

China is launching a major yet classic economic stimulus plan, very similar to the plan announced by the new Japanese Government. The idea is to stimulate the economy via public investments and infrastructure construction. This will probably create a little growth in Japan and China but it’s no great news for us in Europe, as it will stimulate the domestic economy. When you build roads or buildings, you rarely use foreign companies to do so. It’s very different from investing in the industry for example.

[Incrustation]

The United States budget

[Patrick Artus]

The third major topic of 2013 is the budget debate in the United States. We avoided the worst early in the year with a last minute agreement between the President and Congress, the worst being the fiscal cliff due to increased taxes and reduced spending, which would have caused a recession in the U.S. Right now, we have gained a little time; there is still a lot to negotiate to ensure there won’t be a tight budget policy. Specifically, we now need an agreement between the President and Congress about cuts to expenses for the next ten years. How fast will we cut expenses and what type of expenses? This needs to happen in the upcoming months. So, there still is a great deal of uncertainty on the scale of the slowdown in the U.S., because there will be a slowdown. We can only hope that cuts will be made very gradually over a very long time period. If that is the case, the economy slowdown in the U.S would not be catastrophic but we were so close to a much more serious situation for the world.