Global recovery to remain polarized

The uneven global economic recovery will continue to create a two-speed world where emerging economies will persistently outpace those in the developed world.

Overall, we’re in a global economic recovery, but it’s going to be a very sluggish global recovery, says Luc de la Durantaye, vice-president, CIBC Global Asset Management.

“The U.S. is going to be able to avoid recession, but the growth is going to be very slow; the same goes for Europe [which is] likely to experience a mild recession given the environment [created by] the sovereign debt problem,” he said.

“The only area where we’ll continue to do well is the emerging countries which are expected to continue to grow more robustly.”

Durantaye’s viewpoint is considerably influenced by the fiscal outlook for the deficit-encumbered U.S., Europe and Japan. “That needs to be addressed and that’s going to be taxing economic activities in these regions.”

Countries like China and Brazil, on the other hand, don’t have that fiscal restriction. “In emerging countries this fiscal restraint is a lot smaller and that partly explains the better growth performance in emerging markets,” said Durantaye.

From a policy perspective, the OECD world is entering another stage of policy easing, he added. “We’ve seen it with the ECB; the U.S. is likely to reintroduce some kind of easing in the first quarter of 2012, and certainly the Bank of Canada has said that they would stay on the sidelines [meaning] the policy rates are going to stay low.”

The growth, he stresses, is going to be found in emerging countries and the focus, therefore, must be on the emerging consumer. “China is looking at rebalancing their growth away from investment and exports and towards consumers,” says Durantaye.

Policymakers in China are doing that by letting their currency appreciate, which is hurting their exports, but also building the purchasing power of Chinese consumers who now have stronger currency to buy foreign goods.

“Generally speaking, there’s an advantage to being exposed to the emerging market consumer than the developed market consumer.”