Stagnation Back in Focus as Global Growth Elusive

Scotland’s rejection of independence and a lack of any fireworks at a Fed meeting last week have calmed investors enough to shift the focus back to what some call the “Great Stagnation”, and how to avoid it.

The Group of 20 leading nations, meeting at the weekend, said they were tantalizingly close to adding an extra $2 trillion to the global economy and creating millions of new jobs.

But Europe’s extended stagnation remains a major stumbling block and some big emerging economies are flagging too.

Brazil is expected to revise down its growth rate just three weeks before a presidential election, Russia is mired in economic sanctions over Ukraine, and China’s weak data is partly responsible for the 15 percent fall in the price of Brent crude since early July.

Investors will be watching to see how long OPEC is willing to accept oil prices below the $100-a-barrel mark.

A common G20 concern is the risk of Europe’s malaise pulling others down. U.S. Treasury Secretary Jack Lew cited “philosophical” differences with some of his counterparts in Europe, especially on the need for near-term stimulus.

However, “markets are spared one major source of political and economic uncertainty,” Jorg Kramer, chief economist at Commerzbank, said of Scotland’s decision to vote against independence in last week’s referendum.

Sterling touched a two-week high against the dollar and a two-year peak against the euro on the result. Global stocks were lifted by the news from Scotland, as well as by the U.S. Federal Reserve’s assurances last week that interest rates will remain near zero for a considerable time.

Fed Chair Janet Yellen suggested that despite an end to the U.S. bond-buying stimulus next month, the era of easy money is not yet over. But she also indicated the Fed could raise borrowing costs faster than expected when it starts moving.

While the underlying trend in the U.S. economy is one of strengthening growth, euro zone data out this week is unlikely to point to much of a pick-up.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza