Last Updated : Jan 20, 2016 09:50 AM IST | Source: CNBC-TV18

Recession likely in 2017; like real estate in India: Blackstone

John Studzinski, Vice Chairman, Business Development, Blackstone Group who is a veteran of Indian markets says there's always an opportunity to make some money in India, provided one chooses the sector or the state judiciously.

The world may be slowly headed towards a recession, says John Studzinski, Vice Chairman, Business Development, Blackstone Group. The manufacturing output in the US, Europe has been materially lower over the last 12 months than it was in the previous 12 months, he adds. So, one can see signs of manufacturing recession in the US, he says.

However, this might not result in a recession in 2016 but it could happen in 2017. There is also one more concern which people don’t like to discuss and that is deflation or disinflation driven by commodity prices all going downwards, says Studzinski.

Speaking to CNBC-TV18's Maneka Doshi at the icy skiing town of Davos, a day before World Economic Forum kicks off, Studzinski who is a veteran of Indian markets says there's always an opportunity to make some money in India, provided one chooses the sector or the state judiciously.

Below is  the transcript of John Studzinski Vice Chairman-Business Development, Blackstone Group's interview with CNBC-TV18's Menaka Doshi.

Q: Give us a sense of what the global economy is looking like, the first three weeks of this year 2016 have been terrifying from a public capital markets point of view?

A: It is a bit like tectonic plates on the West Coast to California. You have oil prices being volatile and shifting downwards with the uncertainty around how Iran is going to affect supply. You have got the perception that there is a fairly strong glut. Remember China consumes just 10 percent of the worlds oil. The most of the worlds oil is consumed by Europe and North America. Secondly you have all these American shale companies that are very frail and half of them are probably going under or having to be restructured financially. So, you have got all the uncertainties surrounding oil. You have the geo-political overlay of Saudi and the capital flowing into Iran and all the uncertainty in the Middle East.

Secondly, you have got the fragility of Europe and the capital therefore is flowing into North America. You have got the stock market that is readjusting, it is still high, so the likelihood of a downward adjustment further is probably greater than the market moving. It is not in a bear market yet but it is approaching a bear market.

However people still want to be in the dollar. The dollar is strong and it is going to continue to get stronger. If Janet Yellen raises rates at some point the pressure on her raising rates could get even stronger. However the US consumer as you go around America you see a consumer who is saving more but from a consumer point of view 70 percent of the US economy is the consumer, only 10 percent is oil. So, the consumer is still relatively happy.

Q: Concerns are now mounting on whether the US is continue suffer another recession or not. I think the numbers are swinging towards that a lot more this year than last year, is that a fear that you carry as well that a US recession is in the pipeline in 2016?

A: I think we are starting to see certainly and some of my colleagues have discussed this that in the pure manufacturing space you are starting to see the onset of a recession namely manufactured goods, the amount of output in the United States or in Europe is materially lower over the last 12 months than it was in the previous 12 months. So, what I call as manufacturing recession is definitely being witnessed. How that translates into the consumer, I think 2016 you may not see a recession, 2017 the signs are that it could be the case.

I think you also have another concern which people don't like to discuss which is deflation or disinflation which is driven in part by commodity prices all shifting downwards. Housing prices in the United States pretty sound but you also have a broader concern that the consumer is going to start to save more and that is going to create a lower demand for the broader consumer space.

Q: Given this context many in India believe that this is the year India will shine not just in Davos but in the global economy. Is that your expectation, you are an old India hand and you have been watching India very closely for many years now. So, I am just curious to know are we at a tipping point in India, is this going to be our moment because we have asked that question several times before in the last decade?

A: The old question about emerging markets, are they still emerging or never emerged, I have been going to India for business for over 25 years, Blackstone has been investing in India and quite successfully for over 10 years, we are entering our second decade, having said that it is all relative. As you and I were discussing from an emerging market peer group India is going to be an interesting place for capital in certain sectors but I would say 2 or 3 things, number one, it is going to be on a state by state basis.

The Gujarat model that Narendra Modi perfected, people are now looking at that model saying what other states can have real proper use of investor capital. Secondly, real estate, we found that real estate has been a very good asset class for Blackstone and we think certain aspects of technology and technology services, certain aspects of retail could be very attractive.
First Published on Jan 19, 2016 09:16 pm
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