EMs to Surprise the World

Despite his deep-seated concerns for US growth, popular Canadian economist David Rosenberg is more optimistic for the global growth outlook, which he thinks could surprise on the upside, based on the turnaround stories in emerging markets and a fiscal stimulus out of Germany.

In an interview with Real Vision TV, Rosenberg welcomed the realization, even among central banks, that policy has really hit the limits, saying it’s time for something new, with fiscal policy able to pick up the baton, Yahoo Finance reported.

“There are some interesting things happening right now overseas in Southeast Asia, even parts of Latin America, and in India,” Rosenberg said. “And I think that actually when you do a bottom-up approach towards your global GDP growth forecast, say, for the next year, the next two years, it’s probably going to be higher, not lower. And the question is going to be, how much higher? And then will it be sustained?”

Emerging markets are starting to improve, despite the weakness in the US economy and Rosenberg is impressed that the growth rate in China has stabilized at around 6-6.5%, but more significantly that the private sector numbers are validating the official statistics.

“Now there are all sorts of concerns about the state-owned banks and about the credit bubble. That much is true. But their economy, it looks as though it is stabilizing and at the margin doing a little bit better,” Rosenberg said. “You’re seeing a lot of other turnaround stories there,” he added. “Philippines is doing quite well. I’m noticing the numbers out of South Korea, Taiwan, the production and export numbers have started to pick up in Asia.

“And they all have huge savings rates that, if they can draw them down, they have real interest rates of 300 basis points. So if you’re looking at the part of the world that has the capacity to ease policy, it’s that part of the world.

He also noted that the stock market–which is a discounting mechanism–for the emerging market world was up 20% year to date. “That’s a dynamic part of the world that could end up making a difference in the coming year,” he said.

Offering a more “rational” view on Deutsche Bank, Rosenberg said he does not think it’s going under and not because it’s too big to fail, but it’s too interconnected to fail. “Once you do something to Deutsche Bank, you open up the door for something to happen. And I think that will get resolved,” he said.