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June 22, 2009

China will boost your bottom line

Guest Blogger this week is Dr. Michael Power, Strategist for Investec Bank, South Africa, who is on the left of the photograph. Dr. Power predicted the housing bubble popping to the exact month. I think he was so clear headed because he is not situated in North America and is not as biased by the driving wish to see economic growth return to the Western World. Here he talks about the need to be in the Chinese market. Private equity knows this but it is good to get reminded. Check out Dr. Power:
My forecast for the various parts of the global economy can be summarised as follows: the closer your economy is integrated to the Chinese economy, the more V-shaped your recovery is likely to be. The corollary of this is that the further away – broadly speaking, the more Western-oriented – your economy is from China, the more leaden-footed its recovery will be. That said, because of the base effects of Q4 ’08/Q1 ‘09, year-on-year GDP growth in Q4 ’09/Q1 ‘10 will show significant improvement in Western GDP growth patterns. But this uptick will flatter to deceive and thus be something of a false dawn: the balance of 2010 will show that the underlying GDP growth profile of the West will remain lacklustre and that the real recovery will have to wait for 2011 and beyond. In short, the West’s recovery letter will more likely be a ‘W’. How ironic yet appropriate that the Dubya era will sign off with a period of Dubya-shaped economic growth!
And, off in the far distance, there is a second debate coalescing along the lines of “Even if the US does have to endure a W-shaped recovery, just how robust will that final up-leg be?” The fear is that it might not be the incline of a steep hill but rather that of a gentle slope. Furthermore, the fear is that the new trend GDP growth rate it will gravitate towards will be materially lower than the old, pre-2008 level of 3.0% to 3.5%; 2.0% trend is the whispered number. If so, then perhaps the US (and most likely most of the West with it) is indeed turning Japanese.
You can reach Dr. Power at his email address - michael.power at

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