Tales of the (un)expected

News that hundreds of people successfully wagered on Luis Suarez biting someone during this year’s World Cup finals should come as no surprise. This is a good example of events that at first appear quite unexpected are not really so. Mr Suarez had been banned twice before for the same offence so odds of 175-1 seemed worth a punt.

A more important example is news that the 1Q performance of the US economy was revised down again by the US Bureau of Economic Analysis to -2.9%, their second downgrade after initially recording some small growth. Economists, who had been expecting 1Q14 US GDP to grow 2% at the end of 2013, shook this off as old news and ameliorated the impact as insignificant as it was mainly down to “adverse weather”. However, with extreme weather events now predicted to occur on a more regular basis it will become even harder for both economists and meteorologists to provide the forward guidance needed by policy makers and corporates alike.

A resurgent India (again)

A recent survey by McKinsey highlights the extremely positive outlook of executives in India, with 96% now expecting the country’s economy will improve during the next six months. With the S&P BSE 100 up 14% in the short time since Mr. Modi won the general election the outlook seems very good. However, we saw exactly the same reaction after the election in 2009.

Anyone who has spent time in the country will know that the problems it needs to overcome are entrenched interest groups and mind-numbing levels of bureaucracy, which would make even Josef K blanch. Hopefully the new government can address these issues and enable the country to move forward and grow in the way that many observers have been predicting for so long and that is sorely needed in the current global economy.

A very EU coup

The election of Jean-Claude Juncker as the new head of the European Commission should come as no surprise to those who understand the way European Parliament elections happen on the Continent. Mr. Juncker was the chosen candidate of the European People’s Party, a grouping of centre-right parties that held the most seats post the EU-wide elections in May. Article 17 of the Lisbon Treaty states:

Taking into account the elections to the European Parliament and after having held the appropriate consultations, the European Council, acting by a qualified majority, shall propose to the European Parliament a candidate for President of the Commission. This candidate shall be elected by the European Parliament by a majority of its component members.

So it was obvious that Mr. Juncker would be selected as next head at the meeting between heads of Government held in Brussels. However, all is not lost for Mr. Cameron. The German and Swedish leaders have publically announced sympathy with the UK position on the future of the EU. And any lack of positive momentum in reforming the EU economy will be met by a resounding “we told you so” by the British.

The problems besetting the EU, and the Eurozone in particular, are primarily economic rather than political, as highlighted in the EY Eurozone Forecast. But should the spectre of deflation remain, with associated low growth, high unemployment and reduced competitiveness against key emerging markets, the political tensions will become more pressing.

My boyfriend’s back and you’re gonna be in trouble….

At the end of the week which started with Mark Carney, Governor of the Bank of England, being compared to an “unreliable boyfriend” over his on/off pronouncements about a future rate hike, we got more/less clarity in an interview given by the Governor to theBelfast Telegraph, in which he said “We don’t know. The short answer is that the guidance we are giving to households and businesses… is that because of the variety of big forces that are acting on our economy – heavily indebted households, governments that are consolidating debt, a weak export partner in Europe, the strength of the currency, changes to the financial system, and all the big forces that are here today and will remain in the immediate term – the appropriate path for interest rates is likely to be limited increases in interest rates at a gradual pace.” That clears that up then.

Now we have a new whispering in our ear. The newly knighted Sir Charlie Bean, who retired as the Bank of England’s deputy governor for monetary policy on 30 June, told Sky News that rates will probably rise to the 5% level that prevailed before the financial crisis but not for many years.

“It might be reasonable to think that in that long term you would go back to 5% but it’s probably quite a long way down the road,” he said, according to a transcript of the interview published online.

The problem with this latest commentary is that it is always headlined “interest rates to rise to 5%”, rather than the more prosaic “rates to stay low for foreseeable future, may one day return to normalized levels – but not for many years”.

It is also very good news on the knighthood. It is so much more reassuring to quote Sir Charlie on the economy rather than Mr. Bean.


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