Robert Armstrong, from the Financial Times, and writer Giles Wilkes explore a history of bear markets and ask whether a market rout always leads to a recession.
Tag Archives | Global Economy
Good analysis from the Financial Times looking at recent the Chinese share market gyrations, what effect they will have on the Chinese economy and the wider emerging market economies.
As QE3 – the US Federal Reserve’s third round of quantitative easing – ends, the UK’s Daily Telegraph paints a mixed picture of its overall success.
On the one hand, those economies taking decisive action like the US and UK have survived severe fiscal tightening without further recession. On the flip side, the rest of the world may be on the brink of an even greater crisis caused by this action.
The report compares the response of the Fed to that of the European Central Bank (ECB): “By contrast, the eurozone carried out its fiscal austerity without monetary stimulus to cushion the shock, lurching from crisis to crisis as a result… You have to go back to the Thirty Years War in the 17th century to trump the economic devastation of EMU.”
But the real problem may lie with emerging economies. India has argued that the West’s quantitative easing has only shifted the burden onto others leaving the global economy “more vulnerable than ever”. Rapidly increasing debt could trigger devastation if there is a even a slight loss of liquidity.
China’s recent change of strategy to become a net seller of financial assets to a level that the ECB cannot counter with its ‘QE-Lite’ programme could potentially cause just such a situation.
Could we be looking at QE4 sometime soon?
Few investors would currently bet against the US dollar continuing to rise. Economic growth is outstripping most other developed countries, the Fed might finally be able to raise interest rates next year and America’s current account deficit is shrinking fast.
All this as European and Japanese growth stalls. Their central banks favour a high dollar to assist their own recovery.
As JPMorgan Asset Management write in the Financial Times, history shows that major currency trends usually last once established so there’s no reason to expect the greenback to level off anytime soon.
Whilst this may harm US equity returns, it should indeed lead to stronger corporate profits in Europe. Evidence also suggests emerging markets might withstand this latest period of dollar strength better than before.
There is still a danger that the dollar’s strength could lead to a dangerous imbalance amongst the world’s biggest economies. But, as the FT story concludes, “the last time the US dollar rose sharply and the oil price collapsed it was the start of the great recession. The prospect of unbalanced global growth over the next year or so is a lot more attractive than no growth at all”.
There is also a good video from the FT explaining some of these trends see below.
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