Economic and Strategy Viewpoint

Schroders Economic and Strategy Viewpoint - October 2015

In this month's Economic and Strategy Viewpoint our economists investigate recession fears and inflation horrors in the US, the tax credit nightmare in the UK and the plight of Brazilian politics and its impact on the economy.


Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Senior Emerging Markets Economist

Keith Wade

Keith Wade

Chief Economist & Strategist

Recession fears haunt the US (page 2)

• With the imminent arrival of Halloween, we are focussed on scary scenarios so whilst the likelihood of a China hard landing may have receded, we examine the vulnerability of the US expansion.

• The US economy has cooled since the summer and leading indicators suggest growth will slow further. We see the threat to activity as coming more from a retrenchment by the corporate sector where capex is set to be slashed. Inflation horrors are also lurking, but should be kept in check by global spare capacity, reducing the need for the Fed to engage in shock therapy.

UK: Nightmare at no. 11 Downing Street (page 7)

• The tax credits horror show highlights the difficulties the government faces in reforming welfare spending. The House of Lords’ shocking blockage of a key financial policy will haunt the Chancellor, sending him back to the drawing board.

• However, without welfare reforms, cuts to departmental budgets may have to be even deeper. To add to the Chancellor’s woes, the budget deficit is already off-track, just as the economy is starting to cool. Weaker growth in 2016 could derail the government’s austerity plans.

A very Brazilian house of horrors (page 11)

• Despite tentative signs of adjustment, the Brazilian horror story is far from played out. An early exit for a beleaguered president could be the best outcome.

Views at a glance (page 15)

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

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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.