The fear of “no game in town”
Will 2019 see the start of a recession? Consensus says no, but the financial market slump in December shows that investors are now demanding higher risk premia. To our minds, this is not so much a reflection of changing real economic fundamentals but rather a deeper-rooted concern that we are shifting from the situation where central banks were “the only game in town” to one with “no game in town”.
How would a 'Hard Brexit' affect the U.K. economy?
Michala Marcussen, group chief economist at Societe Generale, talks about the Brexit negotiations and the implications for the British economy. She speaks with Manus Cranny and Yousef Gamal El-Din on "Bloomberg Daybreak: Middle East."
The paradox of uncertainty
A certain level of uncertainty is part of life, and insurance (both private and public) and precautionary savings help manage this so that we can go about our lives unabated. At times, however, uncertainty increases well beyond these levels, often driven by political events. Faced with such uncertainty shocks, business managers will often freeze new investment and hiring decisions, while consumers delay spending on big ticket items such as cars or the purchase of a new home.
Bitcoins, cash and tulips
Bitcoins generated much excitement in 2017, starting off the year valued at just over $1 000 per bitcoin and closing the year at around $10 000, having peaked at close to $19 000 in mid-December 2017. While the extreme volatility of Bitcoin generates both spectacular gains and devastating losses, it significantly reduces the ability of the crypto-currency to serve as a means of payment; the purpose for which it was originally designed. Michala Marcussen, Group Chief Economist, explains the latest trends around the bitcoin.
The quantitative easing retreat
The world has entered a new era, with the central bank liquidity tap – on full since the 2008 crisis – now being gradually turned off. While the Fed continues with quantitative tightening (QT), that is, the shrinking of its balance sheet, the ECB ended its quantitative easing (QE) programme on 31 December 2018. Monetary tightening could have disruptive effects.
Slower and less balanced expansion
The expansion under way since mid-2016 continues, but has lost momentum and, just like a bicycle moving at less speed, is now in greater danger of losing balance. Boosted by fiscal expansion, the US economy has resisted the headwinds of Fed tightening and political uncertainty, but activity in the euro area and China has slowed more markedly. We expect global growth to clock in at 3.7% in 2018 and to slow to 3.5% and 3.4% in 2019 and 2020 respectively.
Can the euro challenge “King Dollar”?
In his State of the Union speech in Strasbourg on 12 September, European Commission President Jean-Claude Juncker announced that proposals would be presented before the end of year aimed at “strengthening the international role” of the euro against the dollar. “It is absurd, he lamented, that European companies buy European planes in dollars and not in euros“. But does the euro have the means to challenge the hegemony of the dollar?
Italy’s Fiscal Multiplier Trap
The impact of discretionary fiscal policy on economic growth is an ongoing topic of debate, and not least these days between Brussels and Rome. Weighing up the different mechanisms at work, we find that the multiplier on fiscal expansion in Italy today is below the levels needed to bring down the debt-to-GDP ratio. Conversely, should the Italian government switch the fiscal lever to austerity, we are concerned that this too could prove self-defeating. In a nutshell, Italy seems caught in a “fiscal multiplier trap”. Breaking out of this requires a much stronger focus on growth boosting structural reforms.
Monetary Policy: back to normal?
The 2008 financial crisis witnessed unprecedented policy responses from the world’s major central banks. Main central banks cut their policy rate to near 0%, exhausting the conventional monetary options. Then, to further ease financial conditions, they started to design a variety of unorthodox monetary policy tools commonly labelled as “unconventional monetary policies”. These have included “lower-for-longer” forward guidance on the short-term rate, large-scale asset purchases, large-scale liquidity provis.