MARKETS It might be heresy but what if the credit crunch turns out to be more of a supply shock than a demand shock? While markets appear to be focusing on the prospect of multi-year consumer deleveraging and weak consumption growth, it strikes us that investors risk forgetting that it is corporates, rather than consumers, that have been on the frontline of the 2009 recession.
The conventional wisdom is that this recession was in essence a housing bubble followed by a bust. But that is too narrow a view. Analyse this year’s gross domestic product falls in the US, eurozone and Japan and you will discover that the dominant contributing factor has been the collapse of corporate, rather than consumer, spending. Capital spending has been cut back brutally and inventory levels run down. So it might be that corporates rather than consumers now hold the key to the shape and duration of the recovery.
