Economists' Outlook a Mixed Bag at FCIB's International Credit Executives (I.C.E.) Conference
Economists at FCIB's Annual I.C.E. Conference predicted the worst days of the economic downturn are now well in the rear-view mirror and will likely remain there...at least for this economic cycle. However, signs of a strong recovery could be countered for a time by lingering risks in the financial system that have yet to be mitigated.
NACM Economist Chris Kuehl, who is also Managing Director of Armada Corporate Intelligence, told I.C.E. attendees that the U.S. economy continues to recover from its deep, painful recession. However, the recovery is being driven by exports and industrial production more than behavior from a newly cautious American consumer base.
"It's not exactly champagne cork-popping time," warned Kuehl. "It's more like wine box-opening time."
What will emerge post-recession in business credit will very likely be a greater frugality across the board. Kuehl promised the days of widespread "no income, no assets" credit applicants garnering loan dollars are over for the foreseeable future, which is a positive development for the long-term sustainability of the U.S. and world economies.
"The whole thing just fell off," said Kuehl of the over-abundance of liquidity during the mid-decade economic boom. "If you got a bunch of credit managers together today, most would say, 'If I did this, I'd lose my job.' We're kind of back in our element a bit."
While catch words such as "mild recovery" and "sustainability" appear to be en vogue as part of a newly emerging cautious optimism, Kuehl said there are still some hurdles that need to be cleared before the economic recovery can advance at a robust pace. Among the top concerns are global geopolitical concerns fueling a likely spike in energy commodity prices, weakness in the value of the dollar and uncertainty on the part of the banking industry over regulatory changes being proposed by an increasingly partisan U.S. Congress.
Meanwhile, keynote speaker Freddy Van den Spiegel, Chief Economist for European financial firm BNP Paribas Fortis, joked that U.S. lawmakers will continue to act surprised by what caused the downturn and pass new regulations to "make sure this never happens again." But waiting to see the U.S. lawmakers' plan and the real impact of proposed changes could continue to impede the needed return of market and consumer confidence.
"All of this new regulation will create a new environment, but we don't yet know what the consequences will be," said Van den Spiegel before later adding that fixing the ills of the financial system is a difficult balancing act.
Still, Van den Spiegel believes the worst of the crisis has come and gone, and a return of confidence will start to fuel needed consumer spending and market investments. Helping drive that improvement will be the stabilization of many financial institutions.
"Banks have already digested a large portion of their losses," he said. "What we've seen is a re-capitalization of the banking system. Banks are better capitalized than before the crisis. So, the bank system seems to be more resilient than before the crisis." In essence, frozen credit conditions should thaw substantially during the remainder of 2010 and throughout 2011, though it could take up to five years to return to a level traditionally considered normal, Van den Spiegel suggested.
However, some risks to any optimistic outlooks remain present. Van den Spiegel noted, "There is still a huge mess to be cleaned up" to get back to a truly sustainable economic environment, both in the U.S. financial system and abroad.
"Normally, a crisis is a moment where excessive behaviors are corrected and bubbles are brought down so we can start the recovery from a clean table," he said. "This time, the table is not clean. This crisis did not resolve all existing imbalances."
Brian Shappell, NACM staff writer
