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Alternative Market Briefing

World outlook and risks: Asset manager sees vulnerability in developed countries, IMF lowers forecast

Friday, July 25, 2014

Benedicte Gravrand, Opalesque Geneva:

Vulnerable to shocks Syz & Co, a Swiss bank and asset manager, has just issued its own economic outlook, defining three major risks weighing on the world’s markets.

The first risk would be short term; if economic growth in the U.S. is too strong and inflation accelerates, that would force the Fed to tighten its monetary policy much sooner than expected, bringing volatility to the bond and credit markets, and consequently to the stock market. Today’s market is not ready for that.

The second risk concerns China. Growth of private credit has grown there farther than nominal growth for several years, which means that growth will likely lessen, and that credit is inflating faster than growth. There may be a bursting of the bubble, leading to negative economic performance in China, and eventually in the rest of the world. This would create deflationary shock, as what happened in the 1990s in emerging countries – which were not as big as China. And in those days, developed countries’ central banks had what it takes to combat these exogenous shocks.

Today’s ultra-accommodative monetary policies and low reserves mean that developed countries are vulnerable to such shocks on growth or inflation. This is the main risk that weighs on the markets, according to Syz.

World growth forecast down due to "tempor......................

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