Super-Cycle Leaves No Economy Behind as Davos Shifts to Growth
2011-01-23 23:01:01.0 GMT
By Simon Kennedy
Jan. 24 (Bloomberg) -- For only the third time since the
Industrial Revolution, the world may be entering a long-term
growth cycle that will lift all economies simultaneously,
driving bond yields and commodity prices higher.
The depth and scope of the expansion will be a focus for
discussion at this week's annual meeting of the World Economic
Forum in Davos, Switzerland. Evidence of a broadening global
recovery will enable U.S. Treasury Secretary Timothy F.
Geithner, investor George Soros and 2,500 political, business
and academic leaders to shift their emphasis away from crisis-
fighting.
With the economic and investment outlooks "much better"
than in recent years, "people are talking about how to get back
to business as normal and what comes next," said Jitesh Gadhia,
a delegate to the conference and the London-based senior
managing director at Blackstone Group LP, which runs the world's
largest buyout fund.
Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and
London's Standard Chartered Bank are among the financial
companies sending executives to the meeting. Their economists
predict a growth spurt in coming decades led by emerging nations
that will be strong enough to boost developed countries.
Global gross domestic product will swell to $143 trillion
by 2030, allowing for inflation and market-exchange rates, from
$62 trillion in 2010, with China and other emerging markets
accounting for about two thirds of the rise, estimates Gerard
Lyons, chief economist and group head of global research in
London for Standard Chartered, which generates most of its
earnings from Asia.
Investment, Urbanization
Lyons and his colleagues predict a "super-cycle" of
historically high growth that will last at least a generation
and will be led by booming trade, investment and urbanization,
according to a report published in November. He reckons such a
cycle has occurred only twice since the end of the 18th century:
the four decades before World War I and the three following
World War II. He's betting the new phase will contribute to a
reversal in the three-decade decline for U.S. bond yields after
10-year Treasury notes lost an average 40 basis points a year
since the early 1980s.
Richard Dobbs, a director of the research division at New
York-based McKinsey & Co., will use the Davos meeting to
highlight a study by the international consulting firm that sees
an imminent end to cheap capital. The causes are a building
bonanza in developing economies and aging populations who are
draining their savings, according to the report, which was
released Dec. 9.
Signs of Momentum
The 10-year U.S. Treasury note yielded 3.41 percent in New
York on Jan. 21, according to BGCantor Market Data, compared
with 15.8 percent in 1981 and a record low of 2.04 percent in
December 2008. Signs of momentum in the U.S. economy have helped
increase the yield from about 2.9 percent at the start of
December.
"It's a topic capturing the attention of people who want
to think beyond the crisis," said Seoul-based Dobbs.
While Goldman Sachs Asset Management Chairman Jim O'Neill
has found fame for promoting the "BRIC" economies of Brazil,
Russia, India and China, he says their rise has positive impact
beyond their borders, with Chinese imports totaling about $400
billion, almost the equivalent of South Africa's economy last
year. That should attract investors to rich-nation companies
with links to these markets, and the resurgence in the U.S.
economy has prompted O'Neill to predict higher U.S. bond yields
in 2011. He didn't provide a specific forecast.
'Out of Date'
"World-trend economic growth is being lifted," said
London-based O'Neill, who helps manage $840 billion. "The
notion that BRICs benefit at the expense of others is
increasingly out of date."
Investors should buy copper, coal and oil to take advantage
of the growth of cities in emerging markets, according to
Standard Chartered, which says the Chinese yuan, Indian rupee
and Korean won will appreciate on strengthening domestic growth.
Developed nations also will benefit as their emerging-
market counterparts invest more abroad, hire more of their
workers and rely on their expertise in areas such as financial
services, said Lyons, who will be at Davos. He predicts both the
U.S. and European Union will enjoy an average trend growth of
2.5 percent through 2030, compared with the 1.9 percent and 1.7
percent he forecasts for this year.
"It's a win-win situation," said Lyons, who concedes
growth won't always be strong and continuous during the entire
period.
Increasing Integration
The increasing integration of China and other developing
economies will boost commerce and investment worldwide, agrees
Edward Prescott, a senior monetary adviser to the Federal
Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for
analysis of business cycles and economic policy.
Prescott points to South Carolina, which has benefited from
new factories opened by Chinese companies such as appliance
maker Haier Group. The International Monetary Fund projects this
year will be the first in which Chinese foreign investment
outpaces inward flows.
"The whole world's going to be rich by the end of this
century," Prescott said.
Such euphoria may be muted in Davos, given the European
sovereign-debt crisis, fears of a real-estate bubble in China
and mounting public-debt burdens, said Nariman Behravesh, chief
economist at consultants IHS in Lexington, Massachusetts, who is
attending the meeting.
"There's going to be more optimism but still some
worries," he said.
High Unemployment
Talk of a super-cycle gets little support from Joseph
Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends
that globalization and free trade may be stymied by unemployment
in rich nations and the risk that more of these countries' jobs
will be lost abroad. The U.S. jobless rate has remained above 9
percent since May 2009.
"Standard Chartered works mostly in developing markets,
and that shapes its world view," said Stiglitz, an economics
professor at Columbia University in New York. "If you work in
emerging markets, you feel the energy. If you are in the U.S. or
Europe, you see the numbers and it's hard not to feel
depressed."
The difference reflects a "shift in the center of gravity
in the world economy, in which the West is struggling to keep up
with turbo-charged," emerging markets, says Stephen King, chief
global economist in London at HSBC Holdings Plc and a former
U.K. Treasury official. He will outline in Davos what he calls
the next phase of globalization: increased trade among emerging
countries.
Rising Global Output
His team calculated this month that by 2050, global output
will have trebled and average annual growth will accelerate
toward 3 percent from 2 percent in the last decade, with
emerging markets contributing twice as much to the expansion as
the developed world.
Ian Bremmer, president and founder of the Eurasia Group, a
political-risk consulting company in New York, is more downbeat
as he heads to the Swiss ski resort. He predicts what he calls a
"G-Zero" era in which no country has the political or economic
leverage to dominate the international agenda and all nations
focus on their own priorities. That will reduce economic
efficiency and prompt trade conflicts, he said.
Volatility, Uncertainty
The subsequent volatility and uncertainty mean U.S. assets
will prove the "comparative safest bet" and the price of gold
will stay high, Bremmer said, after touching a record $1,432.50
an ounce on Dec. 7. Fixed-income securities still may suffer as
nations impose capital controls, which Brazil and South Korea
have done lately, while companies will continue saving rather
than spending, he predicted.
"Corporations will keep trillions of dollars on the
sidelines," he said Jan. 5 on "Bloomberg Surveillance" with
Ken Prewitt and Tom Keene. "They're just very uncertain about
where the world is heading."
John Hawksworth, the London-based head of macroeconomics at
PricewaterhouseCoopers, is confident a so-called zero-sum world
isn't in the cards. His own attempt to see into the future this
month generated a projection that a bloc of seven leading
emerging markets, including India and China, will be 64 percent
larger than the current Group of Seven by 2050 at market-
exchange rates, compared with 36 percent smaller today.
Even so, average income levels in the G-7 countries will
rise in absolute terms as new market opportunities open up for
their businesses, and consumers will benefit from lower-cost
imports, predicts Hawksworth, who has served as a consultant to
the World Bank and whose company will release its annual survey
of executives in Davos tomorrow.
"There is a shift in economic power from West to East, but
the West can still do well," Lyons said.
--With assistance from Helene Fouquet and Greg Viscusi in Paris,
David Lynch in Washington, and Michael McKee and Tom Keene in
New York. Editors: Melinda Grenier, Daniel Moss.
To contact the reporter on this story:
Simon Kennedy in Zurich at +44-20-7330-7086 or
skennedy4@bloomberg.net
To contact the editor responsible for this story:
Craig Stirling at +44-20-7673-2841 or
cstirling1@bloomberg.net
2011-01-23 23:01:01.0 GMT
By Simon Kennedy
Jan. 24 (Bloomberg) -- For only the third time since the
Industrial Revolution, the world may be entering a long-term
growth cycle that will lift all economies simultaneously,
driving bond yields and commodity prices higher.
The depth and scope of the expansion will be a focus for
discussion at this week's annual meeting of the World Economic
Forum in Davos, Switzerland. Evidence of a broadening global
recovery will enable U.S. Treasury Secretary Timothy F.
Geithner, investor George Soros and 2,500 political, business
and academic leaders to shift their emphasis away from crisis-
fighting.
With the economic and investment outlooks "much better"
than in recent years, "people are talking about how to get back
to business as normal and what comes next," said Jitesh Gadhia,
a delegate to the conference and the London-based senior
managing director at Blackstone Group LP, which runs the world's
largest buyout fund.
Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and
London's Standard Chartered Bank are among the financial
companies sending executives to the meeting. Their economists
predict a growth spurt in coming decades led by emerging nations
that will be strong enough to boost developed countries.
Global gross domestic product will swell to $143 trillion
by 2030, allowing for inflation and market-exchange rates, from
$62 trillion in 2010, with China and other emerging markets
accounting for about two thirds of the rise, estimates Gerard
Lyons, chief economist and group head of global research in
London for Standard Chartered, which generates most of its
earnings from Asia.
Investment, Urbanization
Lyons and his colleagues predict a "super-cycle" of
historically high growth that will last at least a generation
and will be led by booming trade, investment and urbanization,
according to a report published in November. He reckons such a
cycle has occurred only twice since the end of the 18th century:
the four decades before World War I and the three following
World War II. He's betting the new phase will contribute to a
reversal in the three-decade decline for U.S. bond yields after
10-year Treasury notes lost an average 40 basis points a year
since the early 1980s.
Richard Dobbs, a director of the research division at New
York-based McKinsey & Co., will use the Davos meeting to
highlight a study by the international consulting firm that sees
an imminent end to cheap capital. The causes are a building
bonanza in developing economies and aging populations who are
draining their savings, according to the report, which was
released Dec. 9.
Signs of Momentum
The 10-year U.S. Treasury note yielded 3.41 percent in New
York on Jan. 21, according to BGCantor Market Data, compared
with 15.8 percent in 1981 and a record low of 2.04 percent in
December 2008. Signs of momentum in the U.S. economy have helped
increase the yield from about 2.9 percent at the start of
December.
"It's a topic capturing the attention of people who want
to think beyond the crisis," said Seoul-based Dobbs.
While Goldman Sachs Asset Management Chairman Jim O'Neill
has found fame for promoting the "BRIC" economies of Brazil,
Russia, India and China, he says their rise has positive impact
beyond their borders, with Chinese imports totaling about $400
billion, almost the equivalent of South Africa's economy last
year. That should attract investors to rich-nation companies
with links to these markets, and the resurgence in the U.S.
economy has prompted O'Neill to predict higher U.S. bond yields
in 2011. He didn't provide a specific forecast.
'Out of Date'
"World-trend economic growth is being lifted," said
London-based O'Neill, who helps manage $840 billion. "The
notion that BRICs benefit at the expense of others is
increasingly out of date."
Investors should buy copper, coal and oil to take advantage
of the growth of cities in emerging markets, according to
Standard Chartered, which says the Chinese yuan, Indian rupee
and Korean won will appreciate on strengthening domestic growth.
Developed nations also will benefit as their emerging-
market counterparts invest more abroad, hire more of their
workers and rely on their expertise in areas such as financial
services, said Lyons, who will be at Davos. He predicts both the
U.S. and European Union will enjoy an average trend growth of
2.5 percent through 2030, compared with the 1.9 percent and 1.7
percent he forecasts for this year.
"It's a win-win situation," said Lyons, who concedes
growth won't always be strong and continuous during the entire
period.
Increasing Integration
The increasing integration of China and other developing
economies will boost commerce and investment worldwide, agrees
Edward Prescott, a senior monetary adviser to the Federal
Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for
analysis of business cycles and economic policy.
Prescott points to South Carolina, which has benefited from
new factories opened by Chinese companies such as appliance
maker Haier Group. The International Monetary Fund projects this
year will be the first in which Chinese foreign investment
outpaces inward flows.
"The whole world's going to be rich by the end of this
century," Prescott said.
Such euphoria may be muted in Davos, given the European
sovereign-debt crisis, fears of a real-estate bubble in China
and mounting public-debt burdens, said Nariman Behravesh, chief
economist at consultants IHS in Lexington, Massachusetts, who is
attending the meeting.
"There's going to be more optimism but still some
worries," he said.
High Unemployment
Talk of a super-cycle gets little support from Joseph
Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends
that globalization and free trade may be stymied by unemployment
in rich nations and the risk that more of these countries' jobs
will be lost abroad. The U.S. jobless rate has remained above 9
percent since May 2009.
"Standard Chartered works mostly in developing markets,
and that shapes its world view," said Stiglitz, an economics
professor at Columbia University in New York. "If you work in
emerging markets, you feel the energy. If you are in the U.S. or
Europe, you see the numbers and it's hard not to feel
depressed."
The difference reflects a "shift in the center of gravity
in the world economy, in which the West is struggling to keep up
with turbo-charged," emerging markets, says Stephen King, chief
global economist in London at HSBC Holdings Plc and a former
U.K. Treasury official. He will outline in Davos what he calls
the next phase of globalization: increased trade among emerging
countries.
Rising Global Output
His team calculated this month that by 2050, global output
will have trebled and average annual growth will accelerate
toward 3 percent from 2 percent in the last decade, with
emerging markets contributing twice as much to the expansion as
the developed world.
Ian Bremmer, president and founder of the Eurasia Group, a
political-risk consulting company in New York, is more downbeat
as he heads to the Swiss ski resort. He predicts what he calls a
"G-Zero" era in which no country has the political or economic
leverage to dominate the international agenda and all nations
focus on their own priorities. That will reduce economic
efficiency and prompt trade conflicts, he said.
Volatility, Uncertainty
The subsequent volatility and uncertainty mean U.S. assets
will prove the "comparative safest bet" and the price of gold
will stay high, Bremmer said, after touching a record $1,432.50
an ounce on Dec. 7. Fixed-income securities still may suffer as
nations impose capital controls, which Brazil and South Korea
have done lately, while companies will continue saving rather
than spending, he predicted.
"Corporations will keep trillions of dollars on the
sidelines," he said Jan. 5 on "Bloomberg Surveillance" with
Ken Prewitt and Tom Keene. "They're just very uncertain about
where the world is heading."
John Hawksworth, the London-based head of macroeconomics at
PricewaterhouseCoopers, is confident a so-called zero-sum world
isn't in the cards. His own attempt to see into the future this
month generated a projection that a bloc of seven leading
emerging markets, including India and China, will be 64 percent
larger than the current Group of Seven by 2050 at market-
exchange rates, compared with 36 percent smaller today.
Even so, average income levels in the G-7 countries will
rise in absolute terms as new market opportunities open up for
their businesses, and consumers will benefit from lower-cost
imports, predicts Hawksworth, who has served as a consultant to
the World Bank and whose company will release its annual survey
of executives in Davos tomorrow.
"There is a shift in economic power from West to East, but
the West can still do well," Lyons said.
--With assistance from Helene Fouquet and Greg Viscusi in Paris,
David Lynch in Washington, and Michael McKee and Tom Keene in
New York. Editors: Melinda Grenier, Daniel Moss.
To contact the reporter on this story:
Simon Kennedy in Zurich at +44-20-7330-7086 or
skennedy4@bloomberg.net
To contact the editor responsible for this story:
Craig Stirling at +44-20-7673-2841 or
cstirling1@bloomberg.net
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