Introduction
Valentijn van Nieuwenhuijzen is head of strategy for the strategy and tactical asset allocation group at ING Investment Management. He is responsible for formulating the firm’s macroeconomic outlook and fixed-income tactical asset allocation. Focused on tactical allocation between cash, fixed-income, equities, real estate, and commodities, and more particularly between specific fixed-income markets such as treasuries, intergovernmental credits, high-yields, and emerging market debt, his research supports the ING Investment Management global asset allocation team’s allocation decisions. He is a recognized expert on growth, inflation, and central bank policy in the major economic blocks and the global dynamics that influence different regions. Until 2008, as a member of the global fixed-income team he was responsible for formulating the team’s macroeconomic outlook. van Nieuwenhuijzen specialized in international macroeconomics at the University of Amsterdam, where he took his degree in 1998.
What is your view of the growth prospects for developed and emerging economies?
By the start of the fourth quarter of 2010, the global economy, which had picked up to the high single digits following the 2008 crash, had begun to decelerate. Much of that early growth was inventory-driven as companies restocked. As the positive impact from inventories started to wane, fiscal policy, too, turned from a boost to a drag. Developing economies started to tighten fiscal policy to combat inflation, while developed economies in Europe moved to implement fiscal austerity to claw back very substantial deficits.
This left private demand to take over the baton. While the prospects for emerging markets continue to be good, with signs of increased private consumption, developed economies have been struggling as far as both the consumer and private enterprise are concerned.
Over the past two years savings rates in the developed countries have increased substantially, taking money out of the economy, while the corporate sector has witnessed sharp improvements to its collective balance sheet. This leaves the private sector in a position to produce a cyclical increase in demand as low stocks of capital and durable goods come up for replenishment.
However, there are clear signs that this cyclical increase is having trouble getting off the ground. Business confidence remains weak, especially in the United States, which suggests that companies will be reluctant to drive demand via investment. This creates a difficult set of self-reinforcing circumstances, with the soft labor market conditions in the United States in particular causing consumers to worry about unemployment, while businesses are not hiring due to worries about final demand.
Some room for hope has emerged, however, as US labor market and consumer spending dynamics have improved recently. Moreover, fiscal policy will be more supportive in 2011 than was expected until recently. This suggests that growth will be above 3% this year. Importantly, however, this will not bring the US economy back to equilibrium any time soon, and therefore disinflation will likely persist.
Also positive is that the Eurozone economy has proved to be surprisingly resilient in the face of sovereign turmoil, with Germany as the clear outperformer. We expect momentum in the Eurozone to get some headwinds from fiscal austerity in the peripheral countries. However, this could be cushioned somewhat by preliminary signs of life in core domestic demand.
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