European deflation risk rising Schroders says

Risk of deflation in the Euro zone on the up according to asset manager

European deflation risk rising Schroders says


The asset manager said in a research note that deflation is ‘not its central view’ but reaching that point is becoming more of a possibility.

The multi-asset investment team said that despite recent signs of a modest recovery in European growth, inflation in the region remains at “stubbornly low levels”, below 1% over recent months. This has created worries over the level of momentum in economic growth and sparked renewed concern over the risk of deflation in Europe, they added.

This rising risk could force the hand of the European Central Bank, Schroders said, meaning it has to turn to the long talked about tool of quantative easing,  as used extensively by its counterparts the Bank of England and the Federal Reserve.  

If this does turn out to be the case, Schroders advises investors to wait until quantative easing is underway rather than acting upon its announcement.

This view is based on lessons learnt from the experiences of the Bank of England and Fed, whereby rises in inflation expectations only filtered through once the monetary stimulus had been implemented and was having an effect. 


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