Two of the primary drivers of the economic recovery are now becoming headwinds. In an interview on CNBC yesterday Jan Hatzius of Goldman Sachs described why he is more bearish than the consensus. His primary concerns are the inventory and stimulus headwinds. In a similar strategy note UniCredit expressed the same concerns and provided some more detail. They believe these two trends alone could shave 6 to 7 points from GDP:
“Our expectation of a significant growth slowdown is largely based on the assumption that the growth at the end of 2009/ beginning of 2010 was supported primarily by temporary factors, whose contribution will not only decline in the course of this year but is even likely to become negative. As the following chart illustrates, the fiscal program (American Recovery and Reinvestment Act) and private inventories added roughly 5 percentage points to growth in both the fourth quarter of 2009 and the first quarter of 2010. In the spring, this contribution already dwindled to half a percentage point, and in the second half of 2010 as well as 2011 both components are likely to shave roughly 1½pp off growth. The swing is, therefore, a considerable six to seven percentage points.”
Here’s hoping for a consumer recovery in 2011….Unfortunately, we probably shouldn’t count on it.