Jed Brewer: it's a global crisis
Anticipate a global recession. That was the stark warning Jed Brewer, economist and vice president of Finance & Resource Management Consultants, gave to international convenience retailers during the NACS show in Chicago last month (October).
"This is not solely a US financial crisis but a global one," said Brewer. "In the new era of globalisation, our economies are interlinked."
But more significant, said Brewer, was that countries outside the US have been experiencing similar real estate and asset bubbles.
In Europe, like in the US, heavy borrowing has fuelled economic growth.
"Several countries including the UK, Ireland and Spain had relatively low interest rates and experienced their own house price boom," said Brewer.
Credit markets there are now tightening and consumer spending is weakening and the Eurozone is contracting.
In his address, which described how the US financial crisis happened and the implications for the US and global economies, Brewer told his audience to expect a global recession in the near term, defined as a world growth rate of less than 3%.
But, as bearish as Brewer was about the US economy in the near-term, he was even less optimistic about several other countries.
France and Germany were near recession already, he warned. "This will make it official."
Brewer said Spain, where construction accounts for 10% of the country's GDP, 95% of home loans are variable rate mortgages and unemployment at over 11% is the highest in the Eurozone, will experience trouble.
"The UK will have a recession," he added. "One in five Britons work in the financial sector versus one in 20 Americans," he said, "layoffs and increased unemployment are coming."
In emerging and developing economies, meanwhile, the world is beginning to reassess and reprice risk.
"There's been a flight to quality," said Brewer. "This will mean relative interest rates will rise in emerging markets to include the new risk premium needed to attract investors."
Reduction in US and European demand will also hurt exports and growth will be reduced as a result, added Brewer.
"The US and other countries have begun and will continue to go through a period of deleveraging," he said.
"Monetary authorities will do their best to stabilise confidence and provide liquidity but the downside risks are larger than the upside ones."
On a more positive note, Brewer said downturns tend to provide new opportunities, especially for well-capitalised firms.
He said there was potential for strategic acquisitions in the industry as some firms will be unable to gain access to needed credit.
"Prepare now to find and take advantage of them," he advised.