Mark RaskinoMarkets and economies run on confidence and that confidence is built on shared ideas and beliefs. When those disappear suddenly, things get a lot more volatile and in some cases fear drives decision making.
As this recession unfolded, a lot of widely agreed and repeated pillars of received wisdom fell. For example
- Mid 2007: US headed for a ‘mild downturn’
- Late 2007: Europe ‘won’t catch the cold’
- Early 2008: We are ‘about half way through’ (the credit crisis)
- Early 2008: China is ‘decoupled’
- Mid 2008: Wall Street ‘won’t hurt main street’
As an analyst it has been fascinating to watch some of these beliefs persist well past the point when they were shown to be false. It makes me wonder what other points of current mainstream agreement might come unstuck. Here are some to watch. I am not saying they are false – only that they seem to be generally agreed but also lacking a hard foundation.
- The US economy will turn before the end of 2009
- Global recovery will arrive in 2010
- The US will lead the world out (first in first out)
- Consumer spend will lead the US economy out
- Oil will stay well below $100 and closer to $50
- China’s economic growth won’t fall below 6% and will recover in 2010
- Germany and France won’t follow US & UK style QE stimulus
- The G20 will ‘fail’ (its not clear how this sentiment supports some of the others)
- The US stimulus will lead to significant inflation down the line (anywhere from late 2009 on)
- Any defaulting European nation will be bailed out (ECB and IMF) and the Euro won’t fall.
If the new pillars of wisdom above are mostly true, the IT industry, which is not nearly as badly hit as some others, can just cut its costs for a while and tough things out. That’s the approach most are taking, a good example management action being pay cuts, to retain employees and maintain both competencies and capacity – assuming a recovery in 2010.
By the end of Q2 the status of these assumptions should be a lot clearer.
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