180°

Only a couple of weeks ago, all eyes were set on the most powerful central banks and their unending efforts to lift the world economy out of the funk it’s been in for the last 6 years. The promise by Japan of another round of huge injections of cash into the economy fed the latest bout of overwhelming investor optimism that sent markets to yet new highs.
But then, suddenly, as usually happens in the world of financial markets, most participants’ attention was unceremoniously pulled back to the issue of economic growth.
First, China published its economic figures for the month of October, which definitely did not make for happy reading, as practically all indicators came in below expectations and September levels:
China’s numbers

So far, the Chinese economy not only is not on an accelerating path, but, in fact, it seems to continue losing momentum. It is now highly unlikely that it will achieve the 7.5% growth target set forth by the government for all of 2014. The Chinese authorities don’t seem overly worried by the data, and the markets keep their seemingly boundless hope for massive stimulus measures at some point. The fact is, however, that China is not contributing to the global economy’s healing process at the moment.
Then, the parade of GDP growth figures for the third quarter of the year began in earnest. We already knew the US and the UK grew a little faster than estimated, but then we learned the Euro Zone managed to grow slightly more than in the second quarter, although it is by no means out of the woods: France surprised by growing a bit faster than expected and Spain maintained its rhythm, but Germany eked out only a minimum positive advance and Italy remained in recession. All in all, the European Monetary Union remains uncomfortably close to a relapse into recession, which means more and more pressure is being piled on the European Central Bank to finally adopt a full QE program – printing euros to buy corporate and sovereign bonds – to further stimulate activity in the region.
World GDP

Finally, Japan published its results last Monday, and caught everyone by surprise in a bad way by actually contracting during the third quarter, for the second quarter running. It was common knowledge that PM Shinzo Abe’s plans for the economy were not fulfilling the high expectations they generated when announced, especially after the tax increase in April, but an outright technical recession was definitely not on anyone’s mind. And it triggered a powerful reaction from Shinzo Abe, who announced that the next tax increase, scheduled for October 2015, would be postponed until April 2017, and went on to call for a snap election of the lower house of parliament. Abe seems to be looking to capitalize on his current popularity in order to insure a large supporting majority among lawmakers for next year, when he will initiate a deep reform process.
So, the mostly optimistic sentiment that prevailed in the markets after the latest stimulus packages from the European Central Bank and the Bank of Japanreceded somewhat after this taste of reality. And it seems only right to us to bring the enthusiasm down a notch, since it is looking more and more likely that the US and UK will be the only relatively healthy growth engines for the global economy at least in 2015. Which begs the question: will that be enough?

Patricia Berry