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Money managers under the microscope

Milan’s deserted depots point to double dip

January 29, 2010

 Travelling towards Italy’s major financial centre Milan last Sunday on my way back to Zurich, I spotted something out of the window that had little effect on my fellow train passengers but made my blood run cold.

 The massive storage depot just outside the city was practically devoid of goods containers.

    These containers are usually stacked four high in periods of normal economic activity, although their number fell noticeably during the recession from which we have now supposedly emerged.

But now there was bare space on the ground.

This clear indication of economic woe does not only afflict Italy, however. Over the past several years, the majority of the containers passing through the Milan depot have belonged to Hanjin, China Shipping, Hapag Lloyd (China) and other Chinese shippers.

The recession has undoubtedly impacted the sale of Chinese goods in Italy, and probably in other countries served by the Milan depot as well, such as Switzerland, just an hour’s train ride to the north, with a continuing impact on Chinese exports.

The government has stepped in briskly to lend a helping hand.

 ”The Chinese state has barged in with heavy investment to compensate the fall off in export demand, but I doubt this
massive fiscal stimulus can be maintained in the longer term,” said Julius Baer economist Janwillem Acket.

While Acket believes this author’s fear of a double-dip recession is over-pessimistic, he said he expects to see a
“bumpy” pattern in the global economic recovery.

 Yet there is good reason for fearing the double dip.

 While it is true that corporate profitability has improved since the darkest days of the recession, this has mainly been
achieved by cost cutting, mainly through the axing of jobs.

Which reduces the possibility of a consumer-led recovery, at least in the world’s developed economies.

 Also there is scant evidence of improvement in capital spending, while on the other hand there are plenty of
indications that banks and households are holding on to their available liquidity.

 So while the atmosphere among the world’s most revered financial leaders meeting in the Swiss resort of Davos this week may be significantly more upbeat than last year, Milan’s deserted cargo depots paint a somewhat less rosy picture.

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