Economic and Strategy Viewpoint
Economic and Strategy Viewpoint - February 2018
This month we look at the prospects for trade and the dollar, the case for withdrawing extraordinary stimulus measures in Europe, and forthcoming elections in emerging markets.
Unstructured Learning Time
Duelling in Davos
- Global activity remains robust and the world economy continues to expand; however, there are some early signs that growth rates may be peaking. Look for tax cuts in the US to keep the momentum going in 2018.
– President Trump has had his wish and the dollar has weakened, but the signs from Davos are that the administration would like to see more depreciation. Having argued that the dollar had overshot last year we review our metrics and consider the outlook from here.
The turning tide at the European Central Bank
- Confidence is high amongst investors in the prospects for the eurozone’s growth recovery. Growth is booming, while leading indicators suggest a further acceleration is likely. Yet the European Central Bank (ECB) has maintained its dovish stance on policy. Despite this, the hawks are finding their voices and are making a strong argument for ending QE in September.
- Our analysis supports the end of QE. Goods price inflation seems to be less impacted by the strength of the euro than in the past thanks to stronger domestic demand. Meanwhile, services inflation is likely to rise as spare capacity is eroded.
Back to the ballot box in EM
- After a strong 2017, emerging markets have continued their run of good fortune so far in 2018.
- For many countries, politics threatens this strong run. There are a number of elections in EM this year, with both up and downside risk. Volatility should offer opportunities, if you have the stomach for a rougher ride.
Views at a glance
- A short summary of our main macro views and where we see the risks to the world economy.