After his departure from UBS, Andy Lees went radiosilent while setting up his own research company, AML Macro. We are now happy to be able to bring to our readers' the occasional report from Lees, who has traditionally been one of our favorite macro analysts, and whose insights are usually months ahead of the maintstream.
In the last few days we have seen reports suggesting Brazilian household debt and service payments are weighing on growth, that Southeast Asia’s commercial credit is approaching its pre-1997 financial crisis peak of 75% GDP, and that South Korea’s household debt has reached 164% of disposable income compared with 138% in the US at the start of the housing crisis. Chinese debt rose 15% in excess of GDP last year from 191% to 206%. Its corporate cash flow is around 50% of profitability whilst loan growth is way in excess of the banks’ return on equity meaning the growth is dependent on a continual supply of new capital to the banks. Over the last few years whilst the developed economies have struggled to reduce their debt relative to GDP – (the most successful of the major economies has probably been the US which has taken non-financial sector debt down from a high of 253.15% GDP to 248.18% GDP) – the developing economies have taken advantage of cheap funding to inflate their debt levels dramatically, leaving the global debt position worse than in 2007.. Some of the emerging market debt is relatively small and the necessary rebalancing of the economy should be relatively easy to achieve, but even if it is only a cyclical limit as oppose to the structural limits of the developed economies, it is coinciding at the same time and will add to the global problem. As data on world GDP growth would suggest, it is not just Brazil where the numbers show “the exhaustion of a growth model based on consumption”.
World GDP Growth
http://www.zerohedge.com/news/2013-02-24/andy-lees-emerging-markets-unable-continue-heavy-lifting
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