Credit Suisse 2013 Global Outlook

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Things will look up for much of the global economy in 2013, but the improvements are likely to be lukewarm.


Credit Suisse analysts believe the following: Global growth will improve slightly. Europe will dig its way out of recession. China will see steady growth, and the American housing sector will improve further. But a commodities “super-cycle” of fast-rising prices is almost certainly over, and low interest rates for the foreseeable future make putting money to work challenging.


Here, The Financialist highlights the key developments Credit Suisse financial experts are expecting this year.


Growth: The Takeaway


Analysts predict global growth will end up around 3.4 percent this year – a 0.3 percent increase from 2012.


Europe, having already endured a great deal of fiscal austerity, will drag itself out of recession and begin a mild recovery. That, in turn, should increase demand for emerging market exports.


Credit Suisse Chief Investment Officer Stefan Keitel shares his insights into the most viable investment strategies for 2013.


“Lower for Longer”


Credit Suisse Chief Economist Neal Soss coined the phrase to describe the low interest rates that have prevailed in Europe, North America and Japan for several years, which he expects to rise very gradually, if at all, in the next few years.


Central banks choosing specific macroeconomic signals as a trigger for raising rates have paved the way for an ultra-low rate environment for the foreseeable future, which will make it more difficult for investors to earn attractive returns.


“Viewed as a whole, the global financial system is … migrating into a configuration where capital is either unremunerative… or unavailable,” Soss writes.




The European Central Bank’s (ECB) announcement last fall that it would purchase bonds in the secondary market from EU countries that sign up for a bailout package should lead to some relative stability for the beleaguered euro zone. Credit Suisse expects the continent to pull out of recession early this year and head into a U-shaped recovery. Austerity measures should also ease and bolster economic output in many countries.


Credit Suisse Head of European Economics Neville Hill says Italian and Spanish short-term yields must remain low for the forecast to hold.


Still, Europe continues to face considerable risk this year, including the possibility that the ECB’s bond-buying program fails either because of implementation problems or if the terms are too tough for countries such as Spain, which could sign up this year.


On the political front, crucial elections in Italy and Germany and domestic tension in Greece and Spain remain key risk factors.




Steady growth of about 8 percent and a relatively uneventful economic year are more likely in China in 2013 than either boom or bust, predicts Dong Tao, Credit Suisse’s chief regional economist for non-Japan Asia. Talk of an ambitious fiscal stimulus dominated much of the past year, but this year, relatively steady growth and stretched local government balance sheets should curtail any appetite for new, large-scale government intervention, according to Tao.


Infrastructure projects are picking up, and exports are stabilizing. But Tao cautions that rising labor costs and overcapacity have shrunk manufacturing profits and discouraged private investment.


The Chinese housing market will continue to see strong growth – maybe too strong, especially in the country’s relatively wealthy coastal regions. Tao believes the property market is in the middle of a bubble, albeit one that may not burst anytime soon, thanks in part to Chinese households’ high savings rates.




China’s tighter economic output has contributed to the end of the so-called commodity “super-cycle” of the past decade. As a result Credit Suisse Head of Commodities Research Ric Deverell says the prices of many commodities, including base metals, such as nickel and zinc, and precious metals such as silver and palladium should increase modestly in 2013.


Oil prices could decline as consumers respond to high costs by cutting consumption, Deverell says. Gold could possibly move lower, too, if political and economic difficulties in the U.S. and euro zone continue to fade.


U.S. Housing


During the recession, a growing number of Americans moved in with their parents – and vice versa – to save money. That trend may start to reverse this year if improving economic conditions finally provide the security people need to move out and start their own households, writes James Sweeney, a Managing Director on Credit Suisse’s Global Strategy team.


Concrete numbers are difficult to predict and depend on economic conditions and employment levels. Sweeney expects between 6 and 8 million new households to form over the next five years, a level that could spur an uptick in residential home building that would create between 0.5 million and 1.5 million jobs.


A more optimistic scenario would produce about 9 million new households. The most pessimistic scenario, likely to occur only in a profound economic crisis, would prompt a radical decrease in household formation after accounting for population growth, with just 1 million new households forming over the next five years.


Even if household formation merely follows population growth, Sweeney says 5.7 million new households would develop in the next five years.


The real estate pickup should lift home prices between 4 and 4.5 percent in 2013.


Corporate Profit Margins


American corporate profits make up more than 10 percent of GDP, a higher proportion than at any time since the 1960s.


The trend is likely here to stay for a while. Wages typically must rise for a sustained period of about 10 months before growing as a share of GDP, and instead, they have been falling in real terms, Credit Suisse Global Equity Strategist Andrew Garthwaite says. In addition, low interest rates mean that corporations can reduce costs by refinancing debt, and many corporations have further beefed up margins by outsourcing low-profit work to cheaper environments.


But because companies have been sitting on cash piles for some time now, pressure to spend is also likely in 2013, Garthwaite writes.