Cyber Monday Deal: Up to 60% off InvestingProCLAIM SALE

WRAPUP 1-Rich world growth view unmoved by Fed's QE2-poll

Published 11/09/2010, 09:15 AM
Updated 11/09/2010, 09:20 AM
GC
-
HG
-
SI
-
CL
-

* Growth view broadly unmoved by Fed's latest QE plans * Chances of more QE in the UK recede slightly * No rate hike seen in U.S., Japan until 2012

* No ECB or BOE rate rise until Q4 2011 at earliest

* Inflation view subdued, except in the UK

By Ross Finley

LONDON, Nov 9 (Reuters) - Growth prospects across the rich world have not budged since the Federal Reserve announced a second round of bond purchases worth $600 billion, according to the latest Reuters poll of more than 200 economists.

The latest consensus forecasts lend support to critics of the Fed's hotly-debated policy of further expanding its balance sheet to boost the economy who say it will do more to lift already-soaring asset prices instead.

Polling for the U.S., euro zone and Britain was conducted after the Fed announced last week it planned to resume its quantitative easing (QE) programme.

The central bank itself appears split on the merits of more QE, with several Fed policymakers vocally discussing it, on top of numerous emerging market policymakers sniping at the Fed ahead of the G20 summit in Seoul this week.

Still, economists say that more Fed bond purchases provide insurance against the risk that the world's largest economy suffers another sharp slowdown, and should underpin growth in the rest of the rich world, even with a weaker dollar.

"Over the next couple of quarters we still think the growth pace is likely to fall short of the longer-term trend," said Jan Hatzius, chief U.S. economist at Goldman Sachs in New York.

Some economists are becoming a bit more optimistic, coinciding with a return to meaningful private sector payroll growth in the latest month.

"But as we move through 2011, the lagged effects of the renewed monetary easing combined with a gradual slowdown in the pace of private deleveraging should result in a substantial pickup in GDP growth," Hatzius said.

The Reuters consensus was for 2.0 percent annualised U.S. GDP growth in the current quarter, picking up to 2.5 percent in the second quarter and 3.0 percent by the end of next year, all unchanged from the October survey.

These modest rates of growth stand in contrast with emerging Asian economies like India and China, which analysts said in a poll taken last month would expand more than 8 percent and close to 9 percent in the coming year.

"We expect that the Fed's new large-scale asset purchase program -- dubbed QE2 -- will likely boost growth only modestly, perhaps by 0.2 percent to 0.3 percent in 2011," said Richard Berner, chief U.S. economist at Morgan Stanley in New York.

ASSET PRICES SPARKLE

Not so for asset prices.

Since Fed Chairman Ben Bernanke strongly hinted in late August that QE2 was on its way, the Nasdaq Composite index of mainly technology shares is up about 20 percent. The MSCI index of emerging market equities is up about 15 percent. Gold is up more than 12 percent. Copper is up 16 percent. Crude oil is up 16 percent. And silver is up about 50 percent.

The growth outlook for Japan is slightly more pessimistic in the short-term. Economists expect a slight contraction in the current quarter, partly based on a persistently strong yen, set to remain that way as the dollar comes under pressure from QE2.

In the euro zone, where the biggest economies Germany and France have been leading the way, leaving Spain, Italy and many in the periphery behind, the overall growth picture has not changed much either compared with last month.

But policymakers in Europe, who are once again dealing with a very strong euro and renewed concerns in markets about the fiscal position of some of its weakest economies like Ireland and Greece, have sharply criticised the Fed's latest round of QE. The German finance minister called it "clueless" last week.

Growth prospects have improved slightly in the UK, despite draconian budget cuts on the horizon, thanks to a run of strong economic growth figures. Business surveys are also pointing up even if the labour market remains weak.

That has reduced even further already receding chances that the Bank of England embarks on another round of quantitative easing after 200 billion pounds ($323 billion) worth of bond purchases.

It opted not to do so at its November policy meeting and a bare majority of economists in the latest sample -- 12 of 23 -- say the BoE is likely now done expanding its balance sheet. The median estimate of the 11 who said the bank would extend QE was for a 50 billion pounds increase.

Unlike the Fed, the BoE is grappling with inflation running well above its 2.0 percent target, allowing less room for manoeuvre.

"With inflation expected to rise further ... it will become increasingly difficult for the BoE to expand QE, regardless of its dovish bias," said Matteo Carrozza, economist at British building society Nationwide. (Polling by Bangalore Polling Unit; additional reporting by Chris Reese in New York, Kaori Kaneko in Tokyo, Jonathan Cable in London and Yati Himatsingka in Bangalore; editing by Stephen Nisbet)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.