2015: Reasons to be optimistic
Looking ahead to 2015, an economist would have no difficulty drawing up a ‘misery list’. Let me nonetheless try to identify some rays of hope in the eurozone economy. It’s not all doom and gloom, after all. We have declining energy prices, a favourable euro exchange rate and low interest rate levels, for example. And, in spite of political division, Europe has launched a series of initiatives designed to boost the economy.
Mark Cliffe, chief economist ING Group
The misery list
The anxiety about 2015 is not entirely unfounded, of course. The news remains dominated by geopolitical problems, from the conflict in Ukraine, to the unrest in the Middle East, to the continuing concerns about ebola in Africa. In Europe, persistent high unemployment is feeding populism and extremism, which in turn gives rise to the prospect of a renewed eurocrisis. Business sentiment is also dampened by signs of slower growth in several of the larger emerging markets. Some are even suggesting that Europe may slide into a Japan scenario, which is characterised by extremely slow growth coupled with deflation.
This is one of the four articles, earlier published in the December issue ‘The world in 2015’ of Dutch quarterly FD Outlook, in which Mark Cliffe (chief economist ING), Hamza Khan (commodities, ING Financial Markets), Richard Koning (equity, ING Financial Markets), Piter de Jong (ING Shanghai) and James Poon (ING Hong Kong & China) look ahead to 2015. They discuss a range of topics and markets, from the eurozone’s economy to global equity markets, commodity prices and China’s global ambitions.
The good news
But there are also reasons for optimism. The misery list is already prompting responses which can help us in 2015. Slow global growth and plentiful fuel supplies have led to a sharp decline in energy prices. The oil price alone has decreased by more than 40 per cent, providing a boost to spending power. At the same time, the European Central Bank is making frantic attempts to stimulate the economy, even though German resistance has to be overcome every step of the way. As a consequence, asset prices have risen while borrowing costs, particularly in Southern Europe, have fallen sharply.
Additionally, the ECB has joined the ‘exchange rate war’, albeit it after some delay. The announcement of further monetary easing has caused the euro to lose roughly 6 per cent of its value compared with other major currencies. That is good for the competitive position of exporters in the eurozone, not least Dutch businesses. Furthermore, by no means all our export markets are performing badly. The US and UK economies, which together account for nearly 30 per cent of exports from the eurozone, are experiencing reasonable growth.
European governments are finally willing to embrace more creative ideas on how to stimulate the economy
There are even indications that European governments, spurred on by unrelenting populist opposition, are finally ready to embrace more creative ideas on how to stimulate economic growth. The squabbling about the budget deficits of certain countries will not disappear immediately, but it appears that the budgetary reins are being loosened somewhat. Many politicians recognise that not all public expenditure can be categorised under the same heading.
Public investments have a positive impact on long-term growth potential and the present low cost of borrowing means that this is a good time to start making those investments. Maybe the large private companies that are currently awash with cash may share that sentiment too. Now that would give cause for optimism.
Also read the other three articles in this series: