Iain Stealey Iain fixed income portfolio manager at JP Morgan Asset Management says the hard data is obviously more valuable than the sort of expectation data above, what consumers think about where inflation is heading does have a bearing on spending and growth.
To that point, Stealey said, JP Morgan is of the view that both growth and inflation are likely to remain low for the foreseeable future.
This view that growth is likely to remain lower for longer is by no means an unusual one, but it seems increasingly to coexist alongside a view that, despite this, companies will continue to grow earnings.
For some, the argument is that with many corporate balance sheets now fully repaired and debt still exceptionally cheap, companies can afford to borrow in order to grow. For others, the view taken is that central banks will continue to act as a backstop, stepping in whenever they are needed to ensure that growth continues – as evidenced by the most recent moves by the Bank of England. And, for those worried that, with rates at zero in most developed economies, central bank policy is reaching its limits, the argument goes, governments will step in and boost growth through fiscal spending.
There are issues will all three of these arguments, but it is increasingly the last of them that is growing in importance.
The concern is that, like quantitative easing before it, fiscal spending is beginning to take on a mantra-like quality; it is increasingly being viewed as the Swiss army knife of solutions, the silver bullet required to kill the secular stagnation werewolf.
However, as Odey Oddessy fund manager Tim Bond pointed out recently, while an increase in government spending on education and research should – over the long term – enhance productivity growth and thereby lead to a faster pace of trend economic growth, “the operational reality for governments is the political present, not the potential economic future.
Says Bond, historical examples of fiscal stimuli tend to focus on high-visibility, job-creation projects because “boosting growth in ten years’ time is not a recipe for getting elected next year”.
