I – 2010 Economic Outlook.
„ Recovery in the United States is confirmed.
At the start of the year, a more positive recovery is continuing in the developed countries, particularly in the United States. After 7.2 million jobs were destroyed in just 18 months, the US economy is now seeing its unemployment rate stabilise. As productivity is highly unlikely to rise faster than in the past nine months (7% quarterly average), a sharp rise in recruitment over the course of the next three months seems to us inevitable. With its positive effect on consumer morale, on revenues and thereby on consumption itself, this improvement in the jobs picture may amplify the current rebound. The foreseeable increase in the final resulting demand is likely to encourage companies to rebuild their inventories, which should contribute to the rebound in GDP. However, beyond a short-term rebound, medium-term growth will remain timid.

„ Growth in developed countries remains timid.

Although economic recovery in the developed countries is well underway, there remain powerful brakes on any solid medium-term upturn. The banks, scrutinising borrower quality more closely now, are preferring to rebuild solvency by buying government debt at nearly zero cost, rather than increasing their lending. This restriction of bank credit, although partially offset by recourse to bond and stock markets, is reducing economic growth potential. Moreover, after being stimulated by US tax provisions to benefit first-time buyers, the residential real estate market is once again showing signs of fragility. Finally, even though the deterioration in the job market in the United States seems to have abated, nonetheless the “real” unemployment rate - taking into consideration non-working people who no longer claim unemployment and people who are involuntarily working only part time – is more likely closer to 17% of the active population to than the official 10%.

„ This soft economic growth allows accommodating policies to continue and keeps inflation risk at bay.

Weakness in the job market, a condition common in all the developed countries, will continue to exert constant downward pressure on pay. There is thus little basis for fearing a rise in consumer prices apart from food and energy. In this context, the authorities seem to consider it legitimate to maintain accommodating monetary policies. They intend to ensure that the withdrawal of fiscal and monetary stimuli is not implemented before dynamic self-sustaining growth takes hold in the private sector. Without positive momentum, any growth runs the risk of being immediately interrupted by the end of stimulus measures. Recent statements by monetary authorities in the main developed countries indicate that they do not think the time is right yet to end support measures, even though the IMF is ready to raise its global growth forecast for 2010 to over 3.1%.


„ World growth is resynchronising.

The US growth recovery, accompanied by, to a lesser extent, the major European countries, is contributing to the vigour of the main emerging countries and/or exporters of raw materials. Inevitably, the strong rise in economic activity in China, India and Brazil is creating inflationary pressures and risks of overheating. Although controlling the inflationary pressures in these countries will undoubtedly necessitate tighter monetary policies, these should not endanger their continuing growth.


„ Market behaviour will be more dictated by fundamentals.

The rise in equity markets which, since March, has been fuelled mainly by central banks saturating the system with superabundant liquidity, is becoming more fundamental, more dependent on expectations of a more favourable economic upturn. Although the engine will change from abundant liquidity to established economic growth, we think the environment is still conducive to investment in equities. The risks associated with this change in behaviour – withdrawal of stimuli, and increased rates – are real, but, while requiring more discernment, selecting stocks in a two-speed world based on estimated results will become more comfortable as the crisis recedes behind us, making estimates less random.