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Monday, September 25, 2006

Thinking Out Loud

I think one of the great virtues of blogging is that it allows you the possibility to say what you would normally only think. Here's an example of something which went across my mind at the weekend.

Basically, using back-of-the-envelope type rough-and-ready, rule-of-thumb, estimation procedures, I had the period 2012 - 2015 pencilled in as the time when push would really come to shove in the most demographically challenged economies - Italy, Germany, Japan and the Eastern European 'Lynxes'. However, working backwards from the solution leads me to think we may be in for choppy water rather sooner.

Basically the odds of a recession in these economies in 2007 are now around the 50:50 mark. But if we have a recession in 2007/2008 then the next growth cycle (which could well be a strong one as China consolidates, and India, Turkey and Brazil come fully online) could run through to 2014/2015. But we should be expecting trouble in the challenged economies sometime before this, which makes me ask myself whether the water is going to back-up-the pipes all the way down to 2008.

Everything really depends on expectations. Once financial markets twig that these economies have a problem, this will 'feed-forward' and impact well before the problem, left to itself, would normally become fully apparent.

As I say, just a thought, but certainly one to keep well in mind.

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