Friday, 18 January 2013

Monetary policy: past present and future…

A bullish economic case can be made for 2013. We have discussed it before:
  • In the US the housing market is creating wealth and real incomes are no longer being eroded by soaring commodity prices.
  • In the eurozone meaningful gains in competitiveness are occurring far faster than many economists predicted, resulting in increasing investment (predominantly from the auto industry). 
  • Japan is seeking to address its long term battle with deflation through a ¥10 trillion stimulus package and attempted devaluation of the yen.
These factors will become more meaningful in the second half of 2013 and beyond.

For now, though, the global economy is digesting the 2% payroll tax increase for US employees stemming from the New Year's Day fiscal cliff deal. Furthermore, American businesses and consumers are pondering their economic future as sequestration looms. These factors are weighing on sentiment indices and depressing business investment. Forward-looking equity investors may be keen to discount the economic improvement now, but as far as the real economy is concerned, central bankers' actions (or inactions) remain crucial. More >

Guy Foster
Head of Portfolio Strategy

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