Breaking through zero: New options for monetary expansion in the EU
After dropping interest rates close to zero and pumping 2.6 trillion euros into Europe’s economy through debt purchases, is the European Central Bank out of ammunition? Not necessarily. Through its “targeted longer-term refinancing operations” (TILTROs), the ECB is planning to use negative interest rates to pay commercial banks to make loans. And economists at the IMF have come up with even more radical proposals to eliminate or restrict cash to allow deeply negative interest rates.
Equity markets and the global economy
Company earnings are a traditional gauge of economic health and a powerful driver of financial markets. Recently, however, they have been sending contradictory signals. One reason could be the expansionary credit policies of the past decade, which have distorted balance sheets and weakened competition. The most likely outcome of this process is not necessarily a sudden market meltdown, but rather a steady erosion of corporate finances and economic growth.
Swiss economic success: diversity as capital
Nothing seems to stop the prosperity of the Swiss economy. Its steady growth is seemingly impervious to the political turmoil in the EU, superpower tensions, the vagaries of world trade and even the overly muscular Swiss franc. Switzerland’s highly diverse economy and its unique political system together form an ecosystem that is amazingly productive and resilient. The question, however, is how long the Swiss can manage to shield their order from the globalized world’s homogenizing pressure.
Opinion: Property rights and the challenges of transplanting institutions
Since the time of Adam Smith, economists have understood that the wealth or poverty of nations hinge on the quality of their institutions. Political, economic and social rules of the game can be inclusive, offering opportunities for prosperity to all, or extractive, protecting the rents of a few. But the international effort to introduce one such rule – formal property rights – shows that even simple changes can have complex and unwelcome effects in alien cultural settings.
Chinese trade data ring a bell
The latest batch of Chinese trade figures shows an unexpected decline in exports and imports. On the surface, the data can be dismissed as a statistical blip caused by importers reacting to Sino-American trade tensions. Drill down a little deeper, however, and one begins to see bigger problems for China’s economy.
2019 Global Outlook: Another year near zero
It has been a decade since global interest rates reached the zero lower bound, where monetary policymakers lose their ability to stimulate the economy using conventional policy tools. Among the largest global central banks, only the United States Federal Reserve has set its benchmark above 2 percent. Will this anomaly end in 2019?
2019 Global Outlook: The economy we left behind
2018 was not a bad year for the world economy, and 2019 should be only a little worse. Consistent with our forecasts, last year brought no disasters: no recession in the West, no major slump in China, no public finance crisis in Europe or global trade wars. Instead, there was satisfactory growth and a long overdue cleanup on financial markets. 2019 will be more sluggish as China keeps slowing and the U.S. administration spurs commercial tensions. Yet the biggest brake will be applied by the world economy’s silent actor – lagging productivity growth.
German growth sputters: Should Europe brace for trouble?
In 2018, Germany’s growth dipped. Europe’s economic powerhouse is likely to continue sputtering in 2019 and beyond. Too many European companies have become exceedingly dependent on the health of the German economy and relatively few seem capable of restructuring their production and marketing techniques to succeed on a global scale. The German slowdown will soon be followed by other disappointing figures on the continental scale.
Real economies and financial markets: Outlook for 2019
Financial markets are hesitant, as many sources of concern pile up on analysts’ desks. This report argues that the future of the world economy depends on three sets of variables: policymakers’ ability to adjust to the end of generous monetary policies and profligate fiscal practices; their willingness to recognise the need to engage in structural reforms and act accordingly; the possibility that significant shocks occur – such as a crash in China or an all-out trade war.