Edwin De Boeck, Chief Economist at KBC Corporate, talked economics and interest rates on June 22. In his presentation he discussed various facts and expectations about the situation in the U.S., Germany, Belgium and other European countries. Edwin used Germany as an example. The GIPS countries, Grexit and emerging countries were also discussed.
Accelerating economic growth
He indicated that further economic growth is expected in Europe in 2015/2016, "The economic recovery in Europe continues through ongoing low oil prices, sustained QE from ECB and the fading threat of deflation." Below you will find the rest of the conclusions from the presentation.
The U.S. and Europe
"The labor market in the U.S. is improving, and as expected, interest rates will rise again in the fall for the first time in years," says Edwin. "Interest rates will rise modestly, but Europe will certainly not be left out in the cold. There is a clear connection between the two. If U.S. interest rates increase, European interest rates will also be pulled up." The drop in the price of oil has been received well in Europe. "It's going well," he summarizes. "This has translated into an increase in the growth of consumption in Europe. The peripheral countries are busy catching up. That is also why Greece has caused less damage. Thanks to the fall in oil prices, thanks to the positive effects of ECB's very accommodating monetary policy and thanks to the reforms that have been made in some countries." He indicated that recovery in Europe is spreading, "Consumers have reacted positively to the drop in oil prices; through this, business confidence and consumer confidence rises. We are also being helped by the wage increases in Germany, which lead towards more balanced growth in Europe."
Greece
GIPS, Greece, Italy, Spain and Portugal are vulnerable countries. Greece is getting a lot of attention nowadays, "It is completely wrong to say that they have not done their best. Maybe they have not done their best in the last few months or so, but over the last four years they have definitely done so. Today their budget is almost balanced. All the remediation efforts the Greeks have tried have ensured that their growth has completely fallen apart. Greece is an economic desert. Even if you water it, nothing grows. Yet, it seems that Greece is starting to implement some reforms. In addition, their debt may be partially cancelled by Europe. Four years ago the Euro system almost crashed. Today everything is different. At the time, Greece's debt was completely owned by private creditors. Now, almost everything is in the hands of official creditors like the IMF and ECB. The problem is much better defined today. A certain amount of debt cancellation will be necessary."
China and other emerging markets
"When it comes to the emerging markets, like China, Brazil and Russia, growth is somewhat delayed. The Chinese do have economic growth, but not much. No one is being left behind. Growth is shifting away from investment and moving towards consumption, which is good for the food market. China remains a growing market, but a less stable one at that. What is striking is that India is the only emerging country that is doing really well. This market promises more. In the long term, India is a better choice than China."