SocGen paints a picture of global collapse

SocGen's exploration

"Worst-case debt scenario" probably isn't something you want to hear coming out of the mouths of bankers. But Société Générale - one of France's oldest banks - has today released a report entitled just that.

The report advises clients to be ready for a possible "global economic collapse" over the next two years, warning that state rescue packages over the last 12 months have merely transferred private liabilities onto sagging sovereign shoulders, thereby merely delaying the issue and not solving the problem.

Headed by the bank's asset team the 68-page report said: "As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse."

Lost decade

Daniel Fermon, the bank's chief of assets, also went on to explain how the report should be viewed as an "exploration of the dangers," not a forecast. Nonetheless, that doesn't stop the report offering a particularly scary outlook: according to the French bank's "Bear Case" scenario (the worst of three possible outcomes), the US dollar would slide further down against the euro and global equities would retest the March lows. In addition, the Bear Case would see property prices falling once again, with oil retuning to just US$50 in 2010.

The concern for Société Générale is that the current economic crisis mirrors that of Japan's Lost Decade. In fact, say SocGen, there is really only one fundamental difference between Japan's credit crisis and the current situation in the Western World: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.

Now, says Fermon, the report is reinvigorating opinion on both sides of the Atlantic. He warned yesterday that everybody wants to know what the impact will be; "a lot of hedge funds and bankers are worried," he said.

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