Financial markets signal that the most important and urgent problems besetting the global economy are reasonably under control, for now, whereas the underlying forces are not being addressed. The result is very sluggish growth. Are the political trends in line with this outlook? And, will the relative lull soon be over?
There is an increasing concern whether an even looser monetary policy will stimulate growth as long as the governments don’t provide more fiscal stimulus. That’s why we expect the ECB to wait for more fiscal stimulus and be content for now by preventing a stronger euro. This will probably mean a rate cut to -0.5% and long-term rates that are not far from their bottom.