January, 20 2017 by lsr team

- Germany & EA both growing above-potential, inflation rising
- Less inordinate ECB stimulus to be announced this summer
- Rising euro vs. dollar later in 2017 to put pressure on Italy
- Germany to accept fiscal union, or Italexit a risk in 2018-19
- Ultra-cheap euro, huge trade surplus: a cause of Brexit-Trump
- World impatient with prolonged resolution of new euro-crisis
- German domestic imbalances could shrink over 10-15 years
- Baby boomers retire – saving down. Immigration raises capex

March, 24 2016 by lsr team

We recently published the Q2 2016 edition of the LSR UK Outlook. Our central forecasts assume that the UK remains in the EU, but we also modelled a ‘Brexit risk’ scenario. This risk involved shocking the model in a number of different ways, in particular by weakening trade-weighted sterling, increasing the level of household’s precautionary saving and reducing the share of business investment associated with exports to the EU to a ‘depreciation-replacement’ only level. The difference in the quarterly profile of growth between our central pro...

December, 09 2015 by lsr team

Twelve months ago we said 2015 would be a year of ‘deceptive calm’. With the S&P 500 up 5% and US 10-year yields around 5bps higher, you could say our forecast was accurate. Markets spent much of the year in an anxious state, fretting about Greece, then China, then the risk of a synchronised global recession. In 2006 and 2007, LSR had a high conviction that a financial meltdown was about to wreak havoc on the global economy. This time around we stick with our 2015 theme ‘Keep Dancing’ but with no great conviction. Looking ahead to 2016, China...

November, 11 2015 by lsr team

While markets are fixated on the prospects for emerging markets and whether China’s slowdown will drag down the world economy, a crisis has been brewing in Germany that, according to some commentators, could end Angela Merkel’s reign and reignite the euro crisis. This is probably an exaggeration. Still, it is true that the country’s huge influx of refugees –whom Ms Merkel welcome with open arms –is causing widespread public consternation and undermining the government’s authority. This is a pity because the chancellor’s approach to...

November, 04 2015 by lsr team

The drop in oil price since mid-2014 has been especially abrupt due to a huge positive supply shock that has magnified the impact of a decline in demand for commodities. US oil production has increased by almost five million barrels per day (mbd) over the last five years. Moreover, the re-admission of Iran to the global oil market will further increase near-term supply by around one million mbd. But with persistent oversupply, along with some uncertainty about remaining storage capacity, could oil prices remain at the $40p/b floor we outlined at the start of 2015? Click...

October, 22 2015 by lsr team

The Trans Pacific Partnership is publicly touted in Japan as a boon for exporters, but a well-designed FTA should be geared towards households. The chief gains from free trade typically arise from tougher import competition. The aim of an FTA in Japan should be to increase the efficiency of goods and services provision so that consumers benefit from a more competitively priced product while workers earn more thanks to improved productivity. That’s a heady ideal, and in practice it doesn’t always work like this. The report below examines two key issues: 1) to...

October, 09 2015 by lsr team

Abenomics is a response to frustration with Japan’s poor economic performance since its bubble burst in 1990. But Abenomics treats the symptoms, especially deflation, rather than the disease, which it makes worse. Disastrous consequences of Abenomics have only been avoided so far, because it has failed to generate inflation – courtesy of the oil price slump and Japan’s enfeebled domestic demand. But can QE ever be stopped and more importantly, is Japan about to face a financial crisis? Click below to find out our latest View on Japan.

September, 30 2015 by lsr team

We were delighted to have Charles Goodhart, Professor of London School of Economics and a former Chief Advisor at the Bank of England as our guest speaker at LSR's September conference in London. Professor Goodhart shared his recent in-depth analysis for Morgan Stanley of the impact of future demographic trends on global saving and investment rates and the balance between them. The past three decades saw a profound positive shock to the global labour force but we are now on the cusp of a sharp reversal. Charles discussed with enviable eloquence how demographic changes a...