I chaired a conference session this morning on the outlook for the world economy. Two very smart guys, Robert Hormats of Goldman Sachs, and George Magnus of UBS Warburg, were the speakers. I thought it would be all doom and gloom, but I wasn’t quite right.
Neither thinks the world economy is in particularly good shape, but they reckoned the chances were better of finding a way out of our hole than digging ourselves further in. But this isn’t going to be a swift process. Bob compared our times to the late 19th century. As now, there was an investor-led decline, rather than the consumer-led declines we became used to in the late 20th century. The huge overinvestment and overcapacity in the railways in the 19th century was eventually worked out by consolidation and gradually increasing demand. Nothing is forever.
George also used a chilling phrase to describe the US trade deficit: “lethal arithmetic”. Where the arithmetic leads us, both he and Hormats reckon, is to an overshoot in the depreciation of the dollar.
Oh, and all bets are off if the “wild card” of SARS doesn’t come under control.