Economic and Strategy Viewpoint

November 2016

In this month's viewpoint we look at globalisation in crisis, inflation in Europe and the problems facing China growth.

28/10/2016

Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

Globalisation in crisis

  • Having championed free trade, labour and capital flows the IMF and World Bank find themselves fighting against a wave of protectionism and moves to curb immigration.
  • Low inflation and unemployment would normally make for a high level of satisfaction with the economy, but in today’s flexible labour market good quality jobs are hard to come by and real wages have stagnated.
  • The roots lie in low productivity growth, but the recurring theme of the recent meetings in Washington was how to redistribute the gains from globalisation in a more equitable manner.

Europe: Could higher inflation curtail central banks’ stimuli?

  • Inflation dynamics in recent years have firmly pointed to deflation, yet energy inflation is set to lift inflation significantly in most countries over the next few months. The eurozone should see inflation close to its target, while the UK is likely to see above target inflation, thanks to the falls in sterling.
  • Could central banks be forced to step back from the various stimulus measures? Forward-looking policy makers should realise that first, the energy effect should only be temporary, and second, that they will squeeze living standards and be deflationary in the medium term. This also applies to the UK for the fall in sterling, yet the government is also pressuring the Bank of England to consider the wider impact of its policy.

China: Problems build behind the dam of growth

  • China’s growth is stable but all the old problems remain, with renewed and persistent renminbi (RMB) weakness beginning to nudge complacent investors back into mild concern. More government stimulus will be needed – and delivered – in 2017, but we expect severe problems before the decade is out.

Views at a glance

  • A short summary of our main macro views and where we see the risks to the world economy.

The full document is available below.