- Last quarter we believed that global growth was ticking along nicely. More recent data have led to the lowering of estimates. What basically happed is that growth was pushed out a year.
- Current growth expectation for the developed world remain pretty good albeit that the acceleration has stopped. Due to large currency moves we have also seen that the sources of growth have shifted. With the Euro depreciating against the dollar we see growth picking up in Europe and stabilising at around 2% in the US in 2015.
- Since the start of the crisis seven years ago a lot has improved: government budget deficits have been reigned in, current account deficits have come down, the global financial system is more robust as regulators have identified system banks and forced them to become less risky, the banks are better capitalised, some of the bad debts have wound through the system.
- Some things are however still not OK. Unemployment in Europe is still much too high especially amongst the youth of Southern Europe, there are still bad debts which need to be realised and there needs to be more structural reform addressing 4 key areas: Getting people to work – making labour markets more flexible, facilitating participation of women in the labour force, encouraging meaningful immigration. Increasing competition – reducing the role of the state in the economy, increasing competition in services. Unlocking business potential – fostering entrepreneurship, lowering the regulatory burden for companies. Supporting innovation – labour and product market reforms, measures to support higher investment in research and development
None of the above issues are likely to be solved on the short run. We envisage that Europe will continue to muddle through for the next 3 to 5 years…
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