jueves, 3 de septiembre de 2015

jueves, septiembre 03, 2015

Asia is a bigger problem for Europe than the US
 
China’s market rumbles highlight the limits of a more aggressive ECB, writes Stephanie Flanders
 
 
 
Mario Draghi stole the show at last year’s meeting of policymakers in Jackson Hole when a supposedly dry speech on the causes of European unemployment turned into a central banker’s call to arms. In it he made the case for a more activist approach to Europe’s growth crisis and — finally — a more energetic European Central Bank.
 
This weekend Mr Draghi was not in Wyoming. The focus was on rumbles in China and global markets and what it all meant for the US Federal Reserve. But Europeans should not be under any illusions: recent developments in Asia pose, if anything, an even bigger headache for the ECB. They also highlight the limits to what even a more aggressive central bank can achieve.
 
Much has gone right in Europe in the past 12 months. But the eurozone still has a problem with ­inflation, and with the level of demand.
 
This time last year Mr Draghi pointed to the decline in market measures of inflation expectations as an urgent reason for the ECB to act. Today those same measures show expectations have fallen back to where they were at the start of the year. This is a reflection of falling commodity prices and an unwelcome rise in the value of the euro — both linked to recent developments in China. But it is also a reflection of what are perceived to be the limits of the ECB’s ­effectiveness.
 
You can see this in the contrasting experience of the UK and the US. Like the eurozone, both saw headline inflation fall to zero in the early part of the summer due to the effects of cheaper oil. Yet consensus forecasts expect UK and US inflation to be back to about 1.7 per cent by the middle of 2016. In the eurozone prices are forecast to rise by barely 1 per cent.

In other respects the eurozone is much stronger today than it was a year ago. The strength of lending demand is especially encouraging. Borrowing costs for ordinary businesses and households in countries such as Italy and Spain have carried on falling, even during the spring and early summer, when ructions in bond markets pushed up interest costs for governments.

Business and consumer confidence have also held up well. The ECB can take some credit for this, but it is also thanks to the effects of cheaper oil. Surprisingly, perhaps, Europeans appear more willing to spend the money saved on their energy bills than do their US counterparts.

All of this is good news and a welcome improvement on a year ago. But it is not enough. Eurozone economies are still carrying very high levels of public and private debt and indebted countries, like businesses, need decent cash flow to get out from under that burden.
 
The cash value of the eurozone economy — real growth plus inflation — has risen by less than 6 per cent since the start of 2011 and the crisis economies have actually shrunk. Using the same measure the UK and US economies have each grown by more than 15 per cent. This means they have put the immediate threat of debt crisis behind them, even with relatively high levels of private debt. Despite the improving growth picture, the eurozone has grown by less than 2.5 per cent in cash terms in the past year, much slower than the US and UK. With inflation heading back down again and growth in the 1-1.5 per cent range it will struggle to do much better than that in 2016.
 It is a shame that Mr Draghi’s 2014 speech is remembered as a stepping stone to historic bond purchases by the ECB. Its real novelty was the insistence that governments needed to do their bit to spur overall demand — not just with structural reforms but with more growth-friendly fiscal policy and increased public investment.

We have seen some structural reforms since then, particularly to labour markets. But product markets with the most potential to boost domestic demand — such as opening up the energy sector or retailing — have been largely untouched. And while austerity has eased in most countries there is little sign of better co-ordination of fiscal policy across the eurozone, or better targeting of budget policies towards growth.

Europe is moving forward . But not fast enough for us to say it will not be blown back into deflationary territory by the next shock to oil prices or a sharp slowdown in emerging markets.

Though domestic demand is stronger, the latest output figures showed Germany and others still depend heavily on the rest of the world for their demand.

At his press conference this week we can expect Mr Draghi to offer a commitment to “do what it takes” to get inflation heading back upwards. That is important. Investors need to know the ECB is willing to do more, if it has to. But given what we have learnt about the limits of central bank action, it would be more apt to say the bank will do “what it can”. As Mr Draghi argued last year, governments also need to act; indeed the case for them to do so is now even stronger than it was then.


The writer is chief market strategist for Europe, JPMorgan Asset Management

0 comments:

Publicar un comentario