The Partner View: Is that LUV? (Part 2)
posted by: Nick Roman on 2/11/2010
Yesterday I described Sir Martin Sorrell’s (Oct-09) prediction of a "LUV"-shaped global recovery in 2010 - L-shaped for Europe, U-shaped for the US and V-shaped for Asia. I wanted to see whether this forecast was turning out to be correct. Yesterday I reported how Australia, Asia and the Arab Gulf States were successfully recovering from the economic downturn. Today, let’s compare this with the situation and outlook in Europe and the US . . .
Europe paints a very mixed picture, with recoveries in the German, French, and Italian economies well under way. Giovanni Rampi, owner of MEMIS in Milan, works as the Confirmit reseller in Italy. Giovanni reports that Italian consumer confidence has recently risen sharply. This is probably much to do with the fact that Italian households are amongst the least indebted in Europe, having saved a surprising 11% of their incomes in 2009.
The UK economy is now officially out of recession, but the recovery appears to be following Sir Martin’s L-shape prediction with anemic growth of just 0.1% during Q4 2009.
Three countries that appear to have more troubles than most in Europe are Greece, Spain and Portugal, due to concerns over excessive levels of debt. My partner colleague Jose Pellicer Ballester at ODEC, with headquarters in the orange-growing region of Gandía, confirms this and says that Spain was hoping to move out of recession at the end of 2009, but recent comments comparing the Spanish economy to the situation in Greece has shattered confidence and sent the local financial markets tumbling. Jose adds that the main problem is the rate of unemployment, which is the biggest in the EU at almost 20% of the active population. This will certainly not help solve the debt crisis and so recovery in Spain is likely to take much longer than in other countries.
The effect of the situation in Greece has already seen the value of the Euro drop by 10% in the last two months. There are concerns that if Spain follows the fortunes of Greece then this will be the first major crisis for the Euro and the first real test of the solidarity of the member countries. But let’s not get too gloomy; a weaker Euro will provide a welcome boost to the number of tourists visiting the Mediterranean this summer and also Jose reports that the orange harvest looks like it’s going to be a really good one!!
As for the US, the New York Times reports that the United States economy grew at its fastest pace in more than six years at the end of 2009, even as businesses resisted hiring and continued to do more with less. If the growth continues at this rate it will bring 5.7% in 2010, but most experts seem to think this is optimistic and that growth in 2010 will be nearer the global average of 3–4%. Contrary to this positive news, more than nine out of ten Americans say the US economy is still in bad shape. According to an ABC News Poll, consumer confidence is as impressively snowed-in as Washington DC & New York, with more than three-quarters of people calling it a bad time to spend money and more than half saying their own finances are “in the freezer”. The ABC News Consumer Comfort Index, based on these, stands at an icy -48 on its scale of +100 to -100.
So in conclusion, I would say that Sir Martin’s LUV prediction is looking pretty accurate so far with Asian growth continuing to outstrip both Europe and the US, but as we all know there are bound to be some surprises around the corner and the issues in Southern Europe have still not played out to their conclusion. Still, I think that pretty much wherever we are in the world, most of us would agree that looking out into the start of 2010 is a whole lot better than it was looking out into the start of 2009.