April 2015

Global: Are low interest rates a sign of secular stagnation? (page 2)

• Interest rates have fallen further with 21 central banks cutting policy rates this year whilst global liquidity continues to weigh on longer-term rates. However, despite six years of zero rates, global growth remains tepid and there are fears we are in a period of secular stagnation where the world will struggle with a chronic deficiency of demand. We have some sympathy for this view and recognise the risks, but ultimately see it as too pessimistic.

• The combination of a dovish outlook by the Federal Reserve and the strength of the dollar has caused us to push our first forecast for the rate rise out to September 2015 from June.

UK: Political paralysis to slow austerity (page 6)

• The general election in May is set to be one of the most unpredictable elections in the UK's history as smaller parties capitalise on voters' disenchantment with the mainstream parties. Political paralysis may ensue, which is likely to disrupt the UK's progress in cutting its fiscal deficit. This is good news in the near-term, but over the medium-term will crowd out private investment, and may cause the already record current account deficit to expand further. Yet another reason to sell sterling.

EM: Are exports emerging? (page 11)

• A year of growth in the US and signs that the Eurozone may be turning the corner prompt a re-examination of export data in emerging markets. We could be in line for some isolated pockets of trade recovery this year.

Views at a glance (page 15)

• A short summary of our main macro views and where we see the risks to the world economy.

The full Viewpoint is available at the link below.