The bullish argument for the global economy

With a name like “Credit Writedowns,” this site is obviously not preternaturally given to the wildly optimistic scenario. In fact, my operating assumption is to hope for the best, but plan for the worst and expect something in between. Indeed, in an economic downturn, one needs to be more fixated on planning for the worst than hoping for the best. Nevertheless, as with the last post on China, I want to present the ‘bullish’ scenario to paint a fuller picture of the potential outcomes for the global economy.

In that vein, I want to present an interview with Jim O’Neill, the Chief Economist of Goldman Sachs. Just yesterday morning, I watched O’Neill say on Bloomberg Television UK that he believed the worst is behind us. In his view, Q4 2008 may be the worst in the present downturn. His basic argument is compelling: policy stimulus has been massive all around the globe. This stimulus works with a lag, but will be felt in earnest in the second half of 2009. Therefore, we may have seen the worst of things already.

Now, I do think 2009 is going to be a complete write-off in the world’s major economies. But, I am sympathetic to his argument. For example, there is a realistic best-case scenario for positive growth in the United States starting already by Q3 or Q4 2009.

Because most economists are increasingly pessimistic and this forecast goes against the grain, I have located the O’Neill video and am posting a link below. O’Neill says we should look to the ISM Manufacturing Survey and the Philadelphia Fed Manufacturing Survey as leading indictors for an upside surprise. Irrespective of how you foresee developments in the global economy, you should take O’Neill’s view into your calculus.

Click on picture for video link

Jim O’Neill, chief economist at Goldman Sachs Group Inc., talks with Bloomberg’s Carol Massar about the outlook for recovery of global economies.

O’Neill, speaking from London, also discusses the response to the financial crisis. (Source: Bloomberg)

00:00 Crisis response by G-7, China; banks
03:32 Fourth-quarter 2008 was “worst” for world.
06:14 G-7 meeting; China, Brazil, Russia, India

Related videos
Jim O’Neill Says Contraction in Europe `Worse’ Than US –

  1. Sobers says

    Wishful thinking I’m afraid. There is a least one more downward lurch in this crisis yet. Do you really think that the largest global credit bubble since the 1930s (or maybe ever) is going to pop and all we are going to suffer is a fall in house prices and a (relatively) small increase in unemployment?

    The whole western economic model is built upon debt. Debt for private individuals to buy stuff they didn’t really need, and probably couldn’t afford. Debt for governments to pay for social payments that the underlying earning power of the economy cannot sustain. Debt for companies, not just to finance expansion, but merely to exist. This is a merry-go-round that cannot continue forever. I feel it has hit the buffers now, and the very basis of western life will have to change. That change is going to be more profound and unsettling than anything that has happened in this crisis so far.

    There will be a time to buy in the markets, but that is when NO-ONE is positive. When the only thing people want is gold and a gun. That is the time to buy. We are nowhere near that yet.

  2. Jeff says

    I’m not sure if the stimulus will help that much in the current economic environment. Economies go through cycles and recession is part of the cycle. I read a good article on the history of cycles at, I think,

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