Economist Deciphers International Trends
THE high-powered group of several thousand people who hold the reins of world finance listen to J. Paul Horne. They want to hear the views of this Paris-based economist on the status of European economies in particular, but also on the outlook for the United States and Japan.
Right now Mr. Horne is saying:
* Britain, Sweden, and Finland are in recession. Britain probably will come out of it in the first quarter of 1993.
* The German economy is stagnating or in a minor recession. National output likely will decline in the first half of next year.
* Growth in France will run about 2 percent this year, and may slow to only 1.5 to 1.7 percent in 1993.
* Output in the Spanish and Italian economies is stagnant or down in this last half of 1992.
* Japan's economy will fall around 0.3 percent in the fiscal year ending March 31, 1993, another 0.1 percent in the following fiscal year. That will be Japan's first real recession since 1974.
* The US economy is picking up now and may act as a world economic locomotive, pulling along other economies.
Since 1975, Horne has been following the European economy for Smith Barney, Harris Upham & Co., a New York-based brokerage house. Previously, he had been a financial reporter, acquiring the knack of writing clearly - an ability appreciated by the several thousand institutional investors receiving his economic reports. In return for his analysis and other investment advice, Smith Barney expects to receive orders for securities transactions, reaping commissions.
In effect, Horne is a kind of salesman for his firm - as are a number of other economists employed by investment banking firms. But Horne, as an international economist, is a relatively rare species. In the last few months, he has talked to members of the London Metal Exchange, some 60 corporate chief financial officers in Milan, the Council of European Economists in Frankfurt, visited top financial people in the Middle East for nine days, twice flown to the US for talks with dozens of institutional inve stors, including a seminar for some 90 international fund managers.
That gives Horne some influence on the flows of money around the world. It also means that prominent central bankers will try to give him time when he asks for it. Those officials want to get their opinions and intentions out to that relatively small group of powerful financial people.
That might was demonstrated in September when financial managers moved the equivalent of tens of billions of dollars out of the currencies of Britain, Italy, Spain, Sweden, and Finland, forcing devaluations. Central bankers shelled out perhaps $100 billion in vain in defense of those currencies.
Horne notes that most European central banks have moved to ease monetary policy, even including Germany's inflation-averse Bundesbank. Inflation is considered less a threat than recession and unemployment. Having devalued the pound and the lira by 13 to 15 percent against the German mark, Britain and Italy have given their exporters a competitive advantage that could help lift their economies out of recession. Spain's peseta is down 6 to 7 percent, and, Horne predicts, likely will fall another 5 to 10 pe rcent when foreign-exchange controls are removed.
The cost of those devaluations, however, will be higher domestic inflation over the next few years, Horne says.
President-elect Clinton talks of various fiscal measures (an investment tax credit, infrastructure spending) to stimulate the US economy. Horne doubts that European nations will follow the same route until it becomes clear that monetary easing has not lifted their economies adequately.
Horne expects the US dollar to strengthen further in the coming year. At its low point Sept. 4, it cost 1.38 German marks to buy $1. These days the price has been around 1.6 marks. European economic stagnation, European institutional problems, the political difficulties of the Yeltsin government in Russia, and the civil war in Yugoslavia make the US a more attractive place for investment, he says. Nor do European money managers have an adequate chunk of their portfolios invested in dollar assets.
The US economy, tarnished by four years of recession and slow growth, could soon be shining brighter in the world.