- In our last daily for 2014, we set out what we think will be the key macro themes in 2015…
- …stronger growth, policy divergence, a V-shape for inflation, an aggressive ECB and political risks
- We also provide an update on signs of stabilisation for the ruble, though Russia’s economy will slide
Best wishes and some thoughts for 2015
In our last Global Daily Insight publication for 2014, we would like to wish our readers a Merry Christmas and a Happy New Year. Before we go, we would like to share some thoughts on what we think will be the five big macro themes for 2015.
Upward revisions to economic growth
We got used to repeated macro disappointments over the last few years. However, 2015 may well be the year where we see some growth surprises. The US economy is in rude health, the eurozone will get a lift from a lower euro, while emerging market exports will benefit from stronger advanced economy demand. A gradual slowdown will continue in China, but India and other Asian economies should accelerate.
The great monetary policy divergence
One of our themes for 2014 may well be even more important in 2015. The Fed will likely raise rates by the middle of the year, while the ECB, the BoJ, the PBoC and RBI will step up monetary easing. Continued broad based dollar strength looks to be on the cards.
A V-shape for inflation
Inflation will likely fall further in most economies to very low levels in coming months, and headline inflation will probably turn negative in the eurozone. However, it should rise in the second half of the year as oil prices firm, and US wage growth and a lower euro support core inflation.
ECB breaks the mould
After procrastinating for so long, the ECB looks set to announce aggressive monetary stimulus. Sovereign bond buys and an increased balance sheet target look likely.
Europe’s political risks
There are a number of risks we could point to (such as a China hard landing, a Fed exit and eurozone deflation) that have been round for a while. But with (possible) elections in Greece, the UK and Spain, 2015 European politics will be a big theme.
As CBR unfolds measures, ruble stabilises,…
The Russian Central Bank (CBR) unveiled a set of measures to underpin the banking sector, that together with a rise in oil prices and FX interventions, helped the ruble to stabilise. The CBR signalled that it stands ready to recapitalise the banking sector, if needed. Also, it will provide more dollar liquidity to banks. Meanwhile, banks no longer need to mark their securities to market, can calculate the value of their currency loans using the exchange rate of the previous quarter, and do not need to write down loans to companies affected by EU/US sanctions. These measures basically allow banks to ignore the recent market turmoil, when calculating their capital ratios.
…but Russian financial system not out of the woods yet
Still, strains in the banking sector continue to mount. After reports of long queues before banks, and ATM machines being depleted, Russian banks are increasingly becoming nervous of lending to each other. The three month MosPrime Rate surged to 28.3% yesterday, a level last seen during the financial crisis. While President Putin’s promise during his annual press conference that capital controls are out of the question should avoid complete panic, it is clear that the CBR and the government are still in the eye of a financial storm and will continue to struggle to restore calmness in coming days. In our base case, we think that Russia’s economy is heading for a deep recession, but the risk of the country sliding into a full blown financial crisis remains significant.