Romania 2010: Do we really want to reach bottom and stop falling?
Part 1
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During the last 40 days I have been presenting parts of my prediction for the year to come in many interviews or panels I participated. While stating my opinion, I received the feedback of tens of people, who agreed or disagreed with what I think. Meanwhile the world economic crisis prepares to enter in a new phase, with different characteristics than the previous two phases we all lived during the last 15 months. After the sudden collapse and the continuous drop, we enter now to the fragile stability with some drops of recovery. But these are for the rest of the world, not Romania…
So, let me share with you what I expect to happen in Romania during 2010…
Part 1: The World Environment:
Instability and Fragile Improvement
We probably just reached the bottom "in papers"
Yes, it is true. We started receiving news about positive GDP growth in several major economies all around the world. USA surprised us, Japan too, Germany, France and Italy were a bit positive as well. "So are we going up from now on?" many friends ask me. Well, not exactly. When we reach the point of slightly positive growth, it is obvious the bottom we were all searching to spot. So, now we know that many countries have reached the bottom in terms of GDP deduction (as presented in the official data). This does not mean that from now on all the problems are solved and that economies can return to old happy days.
Is it really over? Or not?
I strongly believe that the leaders of this world are still worried for the situation. If things were ok, we would have seen several measures targeting a normal economical expansion. On the contrary, we continue watching governmental programmes which try hard to protect people and their jobs, to expand their economies by injecting cash in their markets etc. These measures are important, vital, correct, but not "normal", we are still in a turbulent period.
Example: The biggest exporter of the world, Germany, achieved to reach a weak GDP growth mainly because it directed consumption towards cars sales, paying 2.500 euro for every new vehicle, when you would give up to your old one (this is why Dacia reached tremendous sales there, it was already cheap and with the 2.500 euro bonus it became… the new German "toy"). France did the same more or less, USA as well ("Cash for clunkers"). England didn't follow this measure and saw its economy shrinking for one more trimester, the 6th consecutive. Don't confuse yourselves with Japan. They exit now the crisis, but theirs started some years ago, it was not so much connected to the one we all live lately.
So, Germany's +0,7% GDP has any connection to the real life of people? How can it be like this, when all the countries have reduced their imports from 10 – 80%? This year we watched all the account balances shrinking, as the imports of all fell much more than their (falling too) exports. When everyone reduces importing, how is it possible for the biggest exporter to exit the crisis? (especially as the German Governor of the central bank had stated during the summer that the local banks there have almost 800 billion euro toxic bonds in their treasuries). This is why I say that these figures are just for the papers, they don't represent for the moment something real…
GDP growth is just a figure, but not the only important one…
But does this small GDP growth change the lives of people? Well, it helps some to maintain their jobs, but it does not cure the main source of problems. In the same time we hear about more banks closing down in USA, even while the GDP boosted in the last quarter. The toxic bonds are still not "absorbed" by the system, the majority of population faces trouble in paying their loans and credit cards, thousands of people continue losing their jobs. A serious figure is not only the GDP growth or contraction, but also the unemployment rates, the levels of overdue loans, the real consumption (without measures to push it for a while), the level of black economy, the ability of a nation to achieve positive movement without huge budget deficits.
Things may be "less bad", but this does not mean they became "better"
This is why I don't think that we have reached the bottom yet, in terms of real economy. Maybe couple of figures will continue to look positive, but the real bottom of economy will be when we will hear that the number of new jobs was higher than the number of people having lost their job. We can not say that things go better, when (for example) the number of Americans losing their jobs was lower than the previous month. We can say that things were "less bad", as the fall continues.
When figures continue dropping, but with less speed, we reach the bottom. But this does not mean that we already passed it and now we are going up again. Without industrial orders rising, without consumption increasing, more jobs being created, we can not really talk for "the bottom, under which we will not go anymore".
Potential slow world growth, fragile and jobless…
This is not just my personal opinion. I agree with several major international analysts. The next year (at least) will be a difficult one, with a slow, weak pace of recovery. The world is not ready yet for big steps, while the problems of the past are still not solved (even if we wish they are).
Also we talk for a fragile environment. Things can go worse anytime, for various reasons, more or less serious ones. The countries are vulnerable, they have created new huge debts that they will be asked to pay back quite soon. People are scared and the stock markets have been risen not due to any serious improvement, but mainly due to speculation.
Last but not least, the unemployment rate. It is expected to remain high, as the companies will try to post profits by cutting salaries and jobs. They will be afraid to create new jobs, before they get very sure that the problem is over. Thus, we will be listening that the profits of companies will rise in 2010 (comparing to 2009), but this will not lead to sudden hirings. The lay offs may continue for a period, but I hope that during 2010 we will reach bottom and the new jobs will become more. Because without more jobs… we can not expect anything good on the long run.
(and where does Romania stand in this world? Tomorrow the answer)