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Commentary

Wed 24 Apr 2019 / Europe

Franco-German questions on Europe

The longest-running conundrum in the European Union is: 'Who runs Europe – France or Germany?' With Britain on its way to leaving the EU, France and Germany are preparing in different fashions and with different expectations for a new European chapter in which the continent's two leading economies must come to terms with each other without the moderation of a third major economic and strategic player. If the challenges intensify, Angela Merkel in her twilight phase as chancellor will find President Emmanuel Macron a steely adversary.

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Thu 18 Apr 2019 / North America

Fed running out of monetary ammunition

It is clear that President Donald Trump's administration is not concerned with whether the US will have enough resources left to fight the next downturn. The president's quest for an ultra-easy monetary policy at this late stage in the economic cycle might cause the US economy to overheat and thereby rekindle inflation. Moreover, it would leave the Federal Reserve with scant ammunition to fight the next recession. With the Fed funds rate already as low as 2.25%-2.5%, further cuts would leave the central bank with limited room to slash rates.

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Tue 9 Apr 2019 / Asia Pacific,Global

Beijing ready to 'China-ise' the West

The West is slowly getting over the idea that China will 'westernise'. The illusion that it is only a matter of time before the population's rising wealth will deprive the Chinese Communist Party of the power it wields is dissipating. China is enjoying growing wealth because the authorities have set loose beneficial market forces. Many western firms have profited from this, and many more crave China's custom. This means Beijing can now take the route of 'China-ising' the West, including by promoting wider use of the renminbi.

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Thu 21 Mar 2019 / Global

Next financial crisis may eclipse 2008

It is difficult to forecast when the next global economic recession will happen. It is much easier to predict its severity. Among the more disturbing vulnerabilities of the global economy is the large amount of debt spawned by the years of ultra-unorthodox monetary policy conducted by major central banks in advanced economies. According to the IMF, the global debt to GDP level is 250% – around 30 percentage points higher than it was on the eve of the 2008 financial crisis, and the mispricing of global debt has become much more pervasive.

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Wed 13 Feb 2019 / North America

Questions over Fed dovishness

The Federal Open Market Committee's decision at the end of January to pause rate increases was long telegraphed and widely expected. But the highly dovish messaging in the Federal Reserve statement and press conference by Chair Jerome Powell surprised markets. The reasoning for the sharp shift in Fed rhetoric between December and January remains elusive. To reconcile an unchanged baseline economic outlook with its dovish messages, the Fed pointed to increased external downside risks.

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Tue 5 Feb 2019 / Asia Pacific

Election muddies India's outlook

Conditions are becoming murky in the lead up to India's general election in May. Prime Minister Narendra Modi's popularity is falling, and the losses of his Bharatiya Janata Party in state assembly and other by-elections dim his prospects for a clear win. The government's drive to boost growth has shifted economic policies into an expansionary mode. Last October the RBI moved its policy stance to 'calibrated tightening', citing sustained inflation risks. The events since, especially after the resignation of Governor Urjit Patel, shift the bias towards easing.

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Tue 29 Jan 2019 / Global

Banxico independence faces scrutiny

Central banks, traditionally considered harmless technocratic institutions, have come under intense scrutiny since the 2008 financial crisis. A distinct set of tensions is unfolding between Mexican President Andrés Manuel López Obrador and the country's central bank. These follow the president's decision to cut his salary as part of a governmental austerity drive. This indirectly affects other top civil servants, including Banco de México officials, as Mexico's constitution stipulates no public official can earn more than the president.

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Tue 22 Jan 2019 / Global

Proper perspective on emerging risks

You can hear the bearishness in everyone's voices. They fear a market swoon in a world of unstable politics. Risks are mounting, as indicated by recent data signalling slight economic contractions in Germany and Japan. There is plenty of room for unpleasant surprises, especially from higher debt servicing costs and continuing pressures on some emerging markets. But it is important to keep these risks in proper perspective against a global economy that is slowing, but still very strong, and political tensions that are distracting, but unlikely to trigger recession.

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Wed 16 Jan 2019 / Global

Central banks heading for exit

In among all the concern about economic growth rolling over, it is important to recognise that central banks are still heading to the exit. Just before Christmas the Sveriges Riksbank raised rates for the first time in this cycle, a move that went largely unnoticed. In its monetary report, the Swedish central bank acknowledged that countries were entering 'a phase of more subdued GDP growth' globally. The central bank referenced the uncertainties surrounding Brexit and 'the ongoing trade conflict between the US and several other countries'.

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Tue 15 Jan 2019 / Europe

Fiscal money solution for Rome

Fiscal money is a transferable and negotiable government-issued security that bearers may use for obtaining tax rebates two years from issuance. In the case of Italy, FM could fund public investments and social spending programmes, supplement employees' income and reduce businesses' tax-wedge on labour. These allocations would increase and sustain a higher level of domestic demand and improve business competitiveness. As a result, Italy's output gap would close without affecting the country's external balance.

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