Does he foresee a double-dip recession? “We are not in the double-dip camp,” says Laxminarayan. “The reason is simply the underlying macro-economic data across the world, which has started to improve.” What about asset bubbles in China and the possibility that these can stall economic growth there? “People don’t give China the credit that it deserves, especially when it comes to handling some of the macro-driven issues.”

 

“The central banks have the task of keeping sentiment positive, while at the same time starting to withdraw the policy measures that they took to ease the concerns of last year,” he adds. “That’s the bridge which is not easy to cross and that’s what worries us.” Laxminarayan, who was CIO of Shinsei Asset Management and senior vice president at Alliance Bernstein before joining Pictet in 2007, spoke to CFO Innovation’s Cesar Bacani.

 

We are not in the double-dip camp. The reason is simply the underlying macro-economic data across the world, which has started to improve.

 

We look at it from two perspectives. One is the underlying [trends in the real economy], which means what’s happening with the jobless rate, with new job creation, commodity prices, inflation, productivity levels, the output gap. And then there is the financial economy -- what is the amount of public debt, what is the amount of private debt, what’s happening with the currency, what is the ability of the central banks and the financial reserves in each of these countries to go through the crisis?

 

In the real economy, we are seeing a very clear turnaround. It’s much more visible in the process of employment, where we’re beginning to see some troughs. I think unemployment levels have possibly reached the bottom. We’re beginning to see job creation, in fact, beginning to pick up in some parts of the world. We definitely see trade data beginning to turn around across the globe. We are seeing an improved element of production ability. We’re definitely beginning to see a turnaround in industrial production across the world.

 

We think that the virtuous cycle is beginning to come back, as it has already come back in some parts of the emerging world. It is maybe a few quarters away in some other parts of the world.

 

When it comes to financial side, this is where I think you’re beginning to see a big divide between the countries that were affected. The US obviously stands out. You’ve seen deleveraging happening both at the household level and at the corporate level. Households are beginning to save a lot more. The corporates are deleveraging their balance sheet – and all that excess has actually been transferred to the public space. The public debt has thus gone up, which is not great news from a central bank’s perspective.

 

What you don’t want to destroy at this stage is the confidence that’s been built in the last three to four quarters. From the first quarter of 2009, when things looked like they were going from bad to worse, we have seen a complete turnaround in consumer sentiment, in investment sentiment and at the corporate level. The central banks have the task of keeping sentiment positive, while at the same time starting to withdraw the policy measures that they took to ease the concerns of last year. That’s the bridge which is not easy to cross and that’s what worries us.