January 2015

Global 1: Careful what you wish for… (page 2)

  • Investors have welcomed the decision by the ECB to launch sovereign QE and there will be benefits to the economy, primarily through a lower euro. However, QE will also create acute shortages of risk free assets in the region, increasing the likelihood of spill-overs to international bond markets.  Projects such as the Juncker plan now stand a greater chance of being funded by asset-starved investors, but the main effect from ECB QE is to further increase the financial repression of savers in the Eurozone and beyond.

Global 2: Lower inflation is only half the story (page 4)

  • Markets remain gloomy about the outlook for the world economy and whilst we recognise the structural headwinds which challenge growth, we believe that the consensus is not fully accounting for the benefits to activity from lower inflation via real incomes and consumer spending. Energy industry cuts to capex and employment are not sufficient to derail this conclusion given the size of the sector relative to the rest of the economy.

Europe: As ECB begins QE, Greece votes for austerity to end (page 6)

  • The ECB has finally taken the plunge and announced the start of government bond buying (QE). The scale is larger than expected and is likely to help the economy. It comes just in time to quell fears over Greece, where the far-left party Syriza has seized power, and will push for easing of bail-out conditions. However, both QE and softer conditions for Greece will not fix the underlying problems that have plagued the continent. Greece and the Eurozone need structural reforms, otherwise, they risk taking following the same path Japan did.

Is bad news in China good news for commodities? (page 11)

  • China’s slowdown has prompted hopes of stimulus, and optimism for commodities. But this is misplaced. China’s rebalancing and the nature of the slowdown mean we are likely to see less of a lift than in the past

Views at a glance (page 18)

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

The full Viewpoint is available below.

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Economic and Strategy Viewpoint - January 2015 19 pages | 611 kb