Economic & Strategy Viewpoint - July 2015

Global: Storm clouds lift (page 2)

Policymakers ride to the rescue again and markets have breathed a sigh of relief.

The Greek can has been kicked, but only so far as the thorny thicket of debt forgiveness.

Meanwhile, the Chinese authorities’ efforts to stabilise the stockmarket are papering over bigger problems of overcapacity and misallocated resources.

The drop in commodity prices has heightened fears of global recession.

Lower prices have several causes, but US dollar strength is significant and supply side events continue to play a role.

Recession risks in the US cannot be ignored, but inflation concerns mean the balance is shifting toward the Fed being too late in tightening rather than too early.

Eurozone: Political risk shifts to Iberia (page 6)

As the crisis in Greece subsides, we expect investors to shift their attention to two crucial elections in Iberia.

Could another anti-austerity anti-establishment party disrupt the political landscape, and even the Eurozone?

The size of Spain makes the rise of radical parties ahead of its election a greater risk for wider Europe.

However, as the economy recovers and Syriza continues to display its disastrous mismanagement, support for the likes of Podemos has fallen away.

In Portugal, the mainstream parties are likely to hold on to power between them.

Overall, we do not expect either Spain or Portugal to go down the Greek route.

China’s equity boom and bust (page 11)

China’s equity market boom and bust should have a limited immediate macro impact, but we fear the seeds of a future crisis have been sown.

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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