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Central banks keep foot on liquidity peddle

Market volatility over the past few weeks indeed highlighted the fact that all is not well with the world economy and global growth still faces considerable headwinds. While the US economy is recovering, most of the rest of the world is struggling. Fortunately, with global inflation low and heading lower on falling commodity prices and soft demand, central banks have considerable room to manoeuvre. This was indeed borne out by the actions of the ECB over the past few weeks and an unexpected announcement of further policy easing by the Bank of Japan (BoJ) as the month drew to a close.

Despite the surge in concerns over the past few weeks over prospects for the world economy, we remain of the view that the recent weaker data from a number of countries does not mark the start of a new cyclical slowdown. Importantly, the US economy continues to grow solidly, the lower oil price and bond yields provide ‘automatic stabilisers’ for many countries and, with inflation heading lower, central banks will keep very expansionary policies in place until such time as the world economy is on a sounder growth footing.

Economic Outlook

Global growth concerns flared over the past month or so. This is unlikely to mark the start of a renewed cyclical slowdown because lower oil prices and bond yields are providing automatic stabilisers; a number of central banks around the world have implemented additional monetary support and the US economy continues to recover solidly.

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