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Monthly Review : October

  • USA: We estimate that real GDP growth accelerated during the third quarter of 2012 by 2.2% (quarterly annualized), compared to 1.3% in the second quarter.
  • Eurozone: We estimate that real GDP contracted marginally (-0.1%) during the third quarter of 2012, as during the July-August period we recorded conflicting signs: very negative leading indicators and more upbeat hard data. Adopting the scenario of a gradual but uncertain resolution of the euro crisis, but taking into account the negative trend of leading indicators, we estimate that real GDP growth will decline marginally by 0.1% during the whole of 2013 as well.
  • The Eurozone crisis and the necessary fiscal adjustment in the US are creating a drag on Emerging country and Japanese export demand. However, the decline in international food prices from the very high levels of 2011 gives the opportunity for monetary easing especially for the former. We note that in key emerging countries (BRIC's) inflationary pressures continue to outweigh industrial production growth, although this trend appears to be waning.
  • Despite a very positive streak of macroeconomic surprises with equally positive announcements by central banks, risky securities came under pressure. Negative corporate sales announcements in the US are partially responsible since pressures were observed in commodities and in emerging market equities. It is likely that the combination of worsening corporate results, European uncertainty, concerns about the US election and the possibility of fiscal impasse in the US, combined with the very low level of market volatility (a lot of positive news having already been discounted), could lead to a period of rising uncertainty and volatility with a resulting reduction in risk appetite.
  • This period is likely to be transient if a) the US finds a balance between economic slowdown and fiscal derailment and b) if the Eurozone does not diverge from its recent – admittedly slow and uncertain – path towards some kind of deeper integration.