July 2017

• The world’s main economies are still growing in sync, but at a slower pace. Next year, the slowdown will be greater than expected in the US (because of Trump’s unfulfilled promises) and in the UK (due to Brexit uncertainty). The Eurozone remains one of the best performing economies, but can its (modest) growth be sustained without a strongly accommodative monetary policy? China’s economy continues to surprise on the upside; paradoxically a sign of weakness as it means the authorities are underperforming in policy terms. This better-thanexpected GDP performance is largely due to strong growth in coal and steel production and continuing unsustainable credit expansion – all things that the leadership wants to eliminate.

• In near-full-employment economies, the battle is raging between those who see inflation looming and those who argue that the economy is stuck in a lowflation environment. The traditionalists (who fear inflation) will lose. Leaving aside the strong structural deflationary forces (technology, ageing, inequality), there are two economic reasons that explain why the relationship between inflation and economic slack has broken down: (1) the world economy remains awash with the excess supply of highly fragmented global supply chains; (2) the increase in market oligopolies caused by a small number of powerful companies contributes to a decline in the workers’ share of national income.

• Oil prices are another powerful global disinflationary force, and a host of reasons suggest they’ll be much lower for much longer. Among them: (1) five countries having already committed to selling only electric cars in the near future (committing is not delivering but the trend is clear – there’ll be more); (2) China having reached peak demand (according to the Chinese Academy of Social Sciences); (3) technological innovation permitting low-cost producers to extract ever-increasing amounts of oil.

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