In this month's Viewpoint Schroders economists investigate the impact of lower global growth, the risks of UK wage inflation on interest policy, and the potential fallout of a Greek exit from the eurozone.
1 July 2015
- Learning to live in a low growth world
- Is UK wage inflation becoming a risk?
- Minimal economic impact from Grexit
The square root recovery (page 2)
Some five years on from the world economy’s initial rebound in 2010 and it is clear that we are operating in a growth environment best described by a square root sign.
The initial U-shaped upswing has given way to a world of flat 2.5% growth, well below the performance prior to the financial crisis.
Near-term we see signs of better activity in the developed world with US consumers spending again and Europe and Japan reviving.
These trends bode well for the second half of the year and may continue into next if emerging market export growth responds.
However, the comparison with the pre-crisis world highlights the absence of a global locomotive and means that we are unlikely to break with the square-root recovery.
UK: Labour shortages risk higher inflation (page 5)
Warning bells are ringing. Labour market indicators suggest the supply is becoming tight as corresponding wage data is now accelerating.
In some more labour intensive-sectors, wage inflation is already alarmingly high.
Despite the mounting evidence that wage inflation may become a problem, the Bank of England remains relaxed.
This may change later this year as more evidence emerges, but at the same time, with current inflation barely above zero, can the Bank really hike interest rates in 2015?
The prophesies of Delphi: would Grexit topple EM? (page 10)
While we see little macroeconomic impact on the eurozone from the possibility of Grexit, we have not yet looked at the consequences for EM.
Direct linkages are limited, but there is always the risk of contagion.
Views at a glance (page 14)
A short summary of our main macro views and where we see the risks to the world economy.
Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us