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."
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 search for missing inflation
For fifty years, the obsession for combating inflation has dominated OECD economies. Today, inflation has virtually disappeared; central banks are struggling to increase it towards their 2% target. There are multiple causes and they are often linked: globalisation, technological innovations, weakening influence of trade unions, lacklustre global demand, weak inflation expectations… The spectre of “Japanisation” now hovers over the developed economies.
The challenges of a low interest rate environment
Although a boon for borrowers who find themselves more solvent, the current low interest rate environment is posing real challenges for investors as they see plummeting returns on their savings. In addition, persistent low/negative rates could aggravate a certain number of risks to financial stability, especially by encouraging debt gearing, contributing to a potentially unsustainable rise in the price of assets and prompting certain investors to overexpose themselves in their search for yield. Although nowadays banks, on the whole, are more resilient than prior to the 2008 financial crash, new vulnerabilities are appearing as investors turn to assets offering higher returns but greater risks or less liquidity, issued by non-bank financial players.
The new financial system’s ability to withstand macrofinancial shocks has yet to be proven.
Hitting stall speed
Global activity has entered a synchronised slowdown and a further loss of momentum is expected over the 2020-21 horizon. Against this backdrop, the major central banks are set to further ease monetary policy. Several factors are driving the global slowdown. In China, past policy tightening and on-going trade tensions with the US mark headwinds. Turning to the US, the corporate profit cycle is maturing, and we expect that efforts to rebuild margins to weigh on investment and employment. The fiscal stance is also set to deliver less of an impulse to the US economy and we see limited room for any major policy shift on this front ahead of the Presidential election in 2020. Headwinds from the slowdown in global trade are weighing heavily on euro area manufacturing. Brexit uncertainty marks an additional headwind along with ongoing trade policy and geopolitical uncertainty.
Dollar strength may be challenged by fiscal policy
President Trump is pressuring the Federal Reserve to ease aggressively and has complained that China and Europe are taking unfair currency advantage. And, in early August, Washington designated China a currency manipulator. The ever lower and flatter American yield curve, however, signals concern that monetary easing will struggle to revive the economy. Further evidence hereof resides in the coinciding strength of the US dollar and Gold.
What if the Japan is the good scenario?
The impressive expansion, that saw Japan become one of world’s richest nations, came to an abrupt end almost three decades ago with bursting of the bubble. Subsequent domestic policy errors combined with negative external shocks, and not least the 1997 Asia Crisis, sent the Japanese economy into the icy grip of deflation. Exiting this state was not made any easier by a rapidly ageing population and the 2007/08 Great Financial Crisis.
Leveraging the French paradoxes
Two years into his Presidency, Emmanuel Macron has delivered a flurry of reforms that aim to leverage the strength in the paradoxes of the French economy: high productivity yet improvable education, enviable demographics yet low labour utilisation, relatively low poverty rates yet surprisingly low social mobility…