For the first time in a decade, the world’s major economies are growing in sync. All 45 countries tracked by the Organisation for Economic Cooperation and Development are on track to grow this year, and 33 of them are poised to accelerate from a year ago, according to the OECD. All the major developed world central banks – the US Federal Reserve, the European Central Bank and the Bank of Japan – have been buying government bonds as part of their quantitative easing (QE) programs. However, these programs are probably past their use-by date, with central banks now acknowledging their shortcomings. For example, the ECB asset purchases may have become counterproductive. By raising consumer savings, reducing income growth, lifting asset prices and harming bank profitability, QE in Europe has led to less lending to businesses. The question is whether central banks can unwind their QE programs if inflation is falling or low and stable. The coming months and years will see the tussle between cyclical inflation, which is driven by oil prices and the ongoing structural deflation headwinds of technology and globalisation.
Continue Reading:Monthly Notes - September 2017