“Continuing Gloom”, l’ Economic Outlook di Andrea Boltho per REAG

Not many encouraging signs for the world economy have emerged over the last few months. Growth has slowed down significantly in several BRIC countries as well as in many emerging markets, and there is little expectation of a rebound in the near future. For Brazil and India to return to rapid growth rates will require significant reforms for which there seems to be little appetite at present. As for China, it would seem that a new consensus has emerged in the country on the desirability of a gradual slowdown. Whilst until recently it was felt that an annual growth rate of 8 per cent was the floor below which the economy could not afford to fall, 8 per cent seems now to have become a ceiling which the economy is very unlikely to break. For Europe in general, and for Germany in particular, this will mean a lesser growth of exports. It should also, however, bring about lower commodity prices than would otherwise have been the case.

The news coming from Japan and the United States are somewhat better. The ambitious expansionary programme launched by the Japanese authorities has had some positive effects on the stock market, on expectations and on activity (which have all risen) and on the level of the yen (which has fallen). Admittedly, interest rates have also gone up, but, so far at least, only by very little. At less than 1 per cent, yields on ten year government bonds still remain exceptionally low. In the United States, despite the cuts in public expenditure which the so-called “sequestration” programme is imposing, recent indicators have been relatively buoyant. The housing market seems to have definitely turned the corner, employment is rising, if at a relatively slow pace, and confidence seems to be strengthening. The overall outlook is thus for a gradual return to growth rates of 3 per cent per annum, or, possibly, even more.

A potential shock has, however, come from interest rate developments. Some very prudent remarks by Ben Bernanke, the chairman of the US Federal Reserve, which suggested that America’s ultra loose monetary policy might in future switch into a somewhat less expansionary stance (as long as certain circumstances were met), generated a clearly exaggerated reaction on financial markets. US bond yields initially rose by nearly a full percentage point from their lows of earlier this year. They have since declined somewhat, but gyrations of this kind are obviously unhelpful and indicate that any future exit from the easy money policies of recent years will not be smooth.

This is particularly true for Europe. Though the European Central Bank (and the Bank of England) recently announced a somewhat easier policy stance, long-term rates also rose in Europe. The increase, so far, has only been moderate but it is still very unwelcome in an area which is in virtual recession. Higher interest rates lead to wealth losses for bond holders, make borrowing more expensive and weigh on households, corporations and governments all saddled with large debts. They have also been associated with some increases in the spreads between yields on German bonds and on those of the Mediterranean countries.

None of this augurs well for economic prospects in the Eurozone. Recession is still in full swing in Italy and Spain, it has probably begun in France and even Germany is flirting with it. It is true that the most recent indicators for the manufacturing sector in the main European countries suggest that some modest turnaround may come by end-year. Any eventual recovery, however, is likely to be subdued. Bank lending to companies is still declining, investment intentions remain weak, unemployment is rising almost everywhere, house prices continue to fall in most Eurozone countries and fiscal austerity has hardly diminished (Belgium has just joined the general trend by enacting public expenditure cuts and tax increases).

In addition, demand from outside the euro area is weakening. Thus, German exports and export orders, an advance indicator for the country’s industrial production, are declining. One possibly favourable development could come on the exchange rate front. The recent policy announcements made by the world’s two major Central banks (the Fed and the ECB) would seem to be pointing in opposite directions: eventual tightening in the US, a continuing relaxed stance in the Eurozone. Other things equal, this should make for a weaker euro (and pound).

Even with substantial currency depreciation, however, it is difficult to see the Eurozone, or the UK for that matter, return to growth rates that could significantly dent unemployment and raise capacity utilization to more normal levels. Positive growth will return eventually – after all no recession lasts for ever. Yet, a Japanese-like scenario of years of very modest growth or even outright stagnation is, unfortunately, becoming more likely by the day.


GDP Growth Rates (%)        












United Kingdom






United States


















Source: Oxford Economics.

Andrea Boltho is now an Emeritus Fellow of Magdalen College, University of Oxford, where he was Fellow and Tutor in Economics from 1977. His areas of interest are international economics, economic policy and applied macroeconomics. In 1966 he began his career at the OECD’s Department of Economics, where he was also editor of the publication Economic Outlook. In 1973-74 he spent a year as a researcher at the Economic Planning Agency in Tokyo. 
He has been Visiting Professor at the Collège d’Europe in Bruges, at the Universities of Venice, Turin, Paris, Siena and Rome Tor Vergata, at the Bologna Center of the Johns Hopkins University, at the International University of Japan and at INSEAD. He served as a consultant to the World Bank, as a researcher for the Ente Einaudi, as a member of the Academic Board of the IFO Institute in Munich, was a member of the Board of Finmeccanica between 2008 and 2011 and is a Director of Oxford Economics. He has collaborated with numerous multinational corporations such as ABB, FIAT, IBM, KPMG, Pirelli and Siemens. 
He has written books on the Japanese and European economies, including an edited volume comparing Italy and Japan. After high school in Italy he studied at the London School of Economics and at the Universities of Paris and Oxford.
He is a member of REAG’s European Advisory Board. His main task is to monitor and analyze macroeconomic trends in Europe and assist operating management in their business development activity.


Source : Info REAG

Testata giornalistica non registrata ai sensi dell’Art.3 bis del D.L. 18 maggio 2012, n. 63 convertito in Legge 16.07.2012 n°103

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