Chris Bailey said with the global economy moving away from years of relying on central bank monetary policy and low interest rates, countries will need to undergo a series of reforms to stay competitive and achieve growth.
These include improving labour market flexibility, changing taxation and encouraging what he termed “entrepreneurial zeal”.
He said such reform is not easy, but believes Europe is the economy most likely to succeed.
Bailey described Europe as the “low hanging fruit in the global supply-side arena” because its economy is strong and it stands to flourish, particularly if Emmanuel Macron steps up and Angela Merkel is able to cement her legacy.
He also said despite Spain’s recent issues over Catalonia, it could return to being “a good Club Med member” while reform in Italy will nullify the threat of the Five Star Movement at next year’s election.
Italy could also be buoyed if pride kicks in after it sees France and Spain moving forward. “Italy is not the laggard people think it is,” he added.
But Bailey said it will be tougher for the UK to bounce back next year as it struggles with Brexit negotiations and political instability.
“The worst thing you can say about an economy is that it is worse than Japan, but UK growth is akin or worse than Japan. It is very easy to be pessimistic about the UK,” he said.
This comes after the Office for Budget Responsibility said GDP growth is expected to be 1.5% this year, rather than the previously-predicted 2%. Growth is expected to remain stagnant up until 2022 according to the OBR, at 1.4% in 2018; 1.3% in 2019; 1.3% in 2020 and 1.5% in 2021.
However, Bailey said there is potential for the UK to rebound if there is progress on Brexit and political instability subsides.
In fact, he expects sterling to appreciate in 2018, saying it could even hit 1.40 against the dollar by the end of the year.
