The global economy is losing steam

- Setback. "Our picture of a W-shaped economic recovery after the Great Recession appears to be materializing. The expiration of the fiscal packages running into the billions and the reversal of the inventory cycle are now increasingly slowing the pace of global growth. Consideration is being given to new stimulus programs, first and foremost in the US."
- US. "The slowdown there started as far back as this spring and will, moreover, be more pronounced than originally anticipated. There is the growing fear that the economy will slide back into recession. We would not go that far, but we are making a downward revision to our growth expectations for 2010/11 (pages 4-7)."
- Fed. "It is not only the US administration that intends to stimulate again. The central bank has announced its intention to prevent a further shrinking of its balance sheet. Consequently, we do not expect the first rate hike until the beginning of 2012."
- EMU. "The European economy is holding up pretty well. This appears to confirm what ECB economists discovered as far back as 2009: The US cycle is feeding through to Europe less strongly and above all later than in former years. But here too, the slowdown is inevitable. The rapid pace of growth reported this spring cannot be maintained. For 2010/11, we expect GDP growth of 1.6% and 1.3%, respectively (pages 8-9)."
- ECB. "A slide back into recession is, however, improbable, with the result that the central bank could really lean back and continue its exit from the ultra-expansive monetary policy – were it not for the resurfacing concerns about the solidity of European banks and the rapid sovereign bond spread widening (cf. Weekly Comment, pages 2-3)."

Unicredit Friday Notes 20100910

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