#Point of view
In which we talk once again about growth. Yes, once again! It is a key topic, after all, and one that combines expertise and concern in today’s uncertain and often unclear international environment.
An article in Le Figaro analyses the OECD’s latest forecasts for world growth. According to the organisation, growth will reach just 3.3% in 2019 owing to trade tensions and political uncertainties. Last November, the OECD was still counting on growth of 3.5%, but the outlook has been clouded by pessimism. Le Figaro writes: “The OECD has revised its forecast owing to ‘the rise in political uncertainties, persistent trade tensions and the ongoing erosion of business and consumer confidence’. Growth has been revised downwards in all the G20 economies, particularly in the eurozone, where growth is now forecast at 1%, compared with 1.8% as recently as last quarter. Eurozone growth in 2020 is expected to come out at 1.2%, down 0.4% on the most recent forecasts. Within the eurozone, the slowdown in 2018 looks particularly brutal for Germany (down 0.9 points to 0.7%) and Italy (down 1.1 points to -0.2%). The picture in France is slightly rosier (down 0.3 points to 1.3%) as its economy is less dependent on exports.”
So we are looking at a critical year, with a combination of weaker external demand and less confidence, which will weigh on investment in the long term, while the “rise in wages and accommodating macroeconomic policies will support household consumption” in the eurozone, according to the OECD. Le Figaro continues: “According to the OECD, ‘eurozone governments will need to make coordinated efforts in tax and structural terms’, i.e. reduce taxes to support demand in countries with solid public finances and liberalise markets, in particular in services, to increase productivity.” And there you have it!
But the OECD takes things even further, identifying China as a real risk to the global economy. “Following the customs tariffs adopted notably by the United States, world trade has already ‘slowed substantially’ and ‘new orders measured in numerous countries continue to contract’, says the OECD. The barriers put in place in 2018 alone ‘are weighing on growth, investment and living standards, particularly those of low-income households’. The organisation also stresses that global business activity is particularly exposed to a sharper-than-expected slowdown in China, for which it is forecasting growth of 6.2% this year (compared with 6.3% in November) and 6.0% in 2020 (unchanged).” The OECD has also “simulated the potential effect on the global economy of a stronger-than-expected Chinese slowdown: a two-point decrease in GDP growth in China would trim world growth by 0.4 percentage points. This would have the greatest impact on Japan, other East Asian countries, commodities producers, and Germany. The OECD has not revised its autumn growth forecasts for India, where growth is expected to reach a full 7.3% this year, Indonesia (5.2%) or South Africa (1.7%), while Argentina will remain in a recession but the outlook is less gloomy (-1.5% compared with -1.9%).” In addition, OECD chief economist Laurence Boone told Le Figaro that it was important for the low-debt eurozone countries to invest in their infrastructure.
The experts are also paying attention to other figures. Delistings and the number of companies subject to LBOs are setting records around the world. Meeting last week in Berlin, private equity funds are looking to dethrone the “listed” industry, armed with spending money of some $2 trillion in net cash. According to financial daily Les Echos, “private investors have thus launched an attack on listed markets at SuperReturn, a key annual private equity event held in Berlin. ‘We are replacing the capital markets,’ said the head of General Atlantic in Europe, alongside Centerbridge, Ares and EQT.” Les Echos goes on to comment: “By 2023, the performance of a listed portfolio is expected to be reduced by almost half, at 4.5%. For a little perspective, between 2004 and 2018, private equity outperformed listed shares by 530 basis points, at 14.2% a year, and private debt by 327 bps, at 7.1% […] The results of the businesses within the realm of private equity are unrivalled, said Andrea Auerbach from Cambridge Associates in Berlin.” The figures are decidedly head-spinning…