eirmoney | Who Will Lead the Way Out?

Who Will Lead the Way Out?

Posted by Carl R. Olsen | 02 October 2009

Markets to watch for.

It has become pretty obvious in recent months that the traditional heavyweight economies are not going to lead the world out of recession this time around. Too much is wrapped together in almost all sectors of the economy in these countries and they are having a hard time pulling all indicators up simultaneously. Banks are linked to homes and businesses which are linked to some insurance companies and the spin has had a detrimental effect on the auto industry, another casualty of the current meltdown. Other large durable goods industries have been hit just as hard. So where is the next upswing likely to come from?

In all likelihood it will come from economies which may have always been a player but not a leader. We’ll take a look at three that seem to be leading the way out.

The first is Australia. Riding on positive signs from recent months Australia posted positive increases in almost all indicators in June for the fourth time in the last five months. (The next report will be out at the end of September.) Building starts were up as were stock price averages and available money supplies. About the only indicator of a robust return that was not positive was the rural goods exports, but even still during the first half of 2009 the leading economic index ran in positive territory to the tune of 1.3%, or annualized at 2.7%. This is in opposite territory to the 2.8% downturn for the second half of 2008 (-5.5% for the year). While it is estimated that the outlook will be somewhat sluggish for the short term, just like the rest of the world, long term Australia looks poised to climb higher and faster than many economies.

Mexico may be another place to watch. Oil prices, demands for construction for industry and insufficient inventories all make for a stronger Mexico in the near future in certain sectors. Leading economic indicators have risen sharply for the last four months leading up to June which, like Australia, reverses a seriously sharp downward slide. Take a look at history and you’ll see that Mexico has not enjoyed this much of an upward gain since 2004.

Asia, specifically Singapore, is the last place talked about but may be the first in leading the recovery. Singapore’s GDP rose over 20% in the second quarter of the year and it is expected that Singapore will replace the United States as China’s leading export destination. The reason is twofold. First, Singapore became very prudent in its fiscal standing after the downfall of 1997 by many companies reducing leveraged debt. This allowed them to weather the 2008 storm without concerns of large layoffs or plant closings, hence the average person was not affected by the crisis and spending continued. The second reason for Singapore’s swift recovery may have been in its ability to infuse cash into the country, its own stimulus package, at the rate of over 8% of the GDP. That a huge influx for such a small economy and it apparently worked quickly. Singapore banks also were in good financial shape compared to banks from other countries when the banking crisis hit, therefore leaving them virtually unscathed with money to loan.