>Is the crisis over? (ECONOMIC RESEARCH)

As the economies are improving and the financial markets are rising, this question is often asked: is the crisis over? Our answer is clearly negative, with arguments depending on the horizons:
■ in the near term (2010), we cannot see how OECD countries could avoid a significant slump in consumption - which will no longer be bolstered by any of the factors that have accounted for its resilience in 2009;

■ in the longer term, several serious threats appear:

• the irreversible job losses linked to the crisis can no longer be offset by stimulation of demand via credit, and we cannot see how an equivalent number of jobs can be created;

• "de-globalisation" seems to be emerging, due to the substitution of domestic output for imports in emerging countries, which means that growth in emerging countries will no longer drive growth in OECD countries. De-globalisation is, moreover, likely to lead to increased transfer of capital and production capacity to emerging countries;

• it will not be easy to eliminate the huge fiscal deficits run up during the crisis, and they may monopolise savings in OECD countries, especially as prudential rules make it difficult to use savings to provide companies with long term funding; they may also lead to a sharp rise in interest rates if they are no longer financed by central banks in emerging countries;

• the monetary and foreign exchange policies implemented in emerging and OECD countries are leading to massive growth in global liquidity and circulation of global savings that are paving the way for bubbles. These bubbles are already appearing, heralding future crises, due to the inability to control global money supply.

In a medium term prospect, our analysis would be mistaken if:
• new sectors massively created new jobs in OECD countries;
• global trade stopped contracting;
• governments implemented policies of reduction in government expenditure to have any hope of reducing deficits without a significant cost in terms of growth, thanks to Ricardian neutrality;central banks disciplined themselves and stopped the limitless growth in the size of their balance sheet.

However, over the next few quarters, the consumers will be faced with:
• a stabilisation of fiscal deficits (see charts in report ), which will therefore no longer underpin growth in consumption. We can in particular mention the end of the car purchase incentives;

• a rise in inflation (Chart 3) due to the rise in commodity prices (Chart 4);

• continued job losses (Chart 5A), as productivity has still not returned to its normal level (Chart 5B), especially in Europe, and therefore an ongoing rise in unemployment (Chart 5C);

• a slowdown or even a decline in wages in the United States (Chart 6A), due to the high unemployment and companies’ determination to restore their profitability (Charts 6B and C).

To read the full report: IS THE CRISIS OVER?