Global Macro Outlook

I had a chance to sit down last night with the Chairman and CEO of a $3.1B company based in Japan, which doesn’t happen every day. Below I thought I would share a summary of some of his thoughts and general outlook over the next year or so period for various regions.

U.S.
He believes the economy here will continue to see slow growth through the rest of this year, but fears that 2016 will bring another downturn. He does not necessarily see a sharp pullback, but something that may be more drawn out, almost a slow reversal of what we have seen through much of 2014 and 2015. There are three main drivers for this:

• Interest rate hike. With the Fed almost assuredly moving by the end of the year, he believes this will put a damper on growth, even though in theory the economy will be improving enough to handle it whenever the Fed decides the time is right.
• Stronger dollar. His outlook is even more negative on Europe and China, which means he sees a continued strengthening dollar, making it tough sledding for exporters and multi-nationals in the next couple years.
• The third point is interesting. He referred to it is another, smaller, “sub-prime” lending concern. Basically, outside of just home mortgages, his concern is that the average person in the US is so badly in debt that it could cause a real spending crunch. With jobs and wages lagging, people continue to spend and are getting overloaded with car loans, credit card debt, student loan debt, etc.

China
In China, he does not see much of a bounce back coming anytime soon. The gist of his comments here was that the growth over the last decade was too much too fast. He cited labor issues, a quickly growing income gap, and the “rather lazy attitude” of the current generation entering the workforce as some real barriers to continued growth.

Europe
Greece is a very real problem in his mind, with no good solution. His fear is that until that is resolved, it will continue to restrict the normal recovery that should be happening now in the rest of the Eurozone. He came right out and said that the whole idea of the Euro was foolish in the first place, and is really hurting the economy overall there, but figuring a way out now if extremely difficult. He sees a long, slow death spiral for Greece, dragging down the rest of Europe. He feels it is likely Greece will have to go through bankruptcy to get out of this mess.