Global central banks remain cautious

Policy makers have growing concerns over the scale of China's credit bubble.

7th October 2016

We continue to see downside risks to the global growth outlook, a view that appears to be shared by policy makers globally. In September, central banks in the US, Japan, and the UK all affirmed their easing bias. Bond yields remain at or near all-time lows across advanced economies, reflecting this combination of pessimistic growth expectations and loose monetary policy.

Continue to the other two articles of this addition of the Global Outlook....

Stamp duty and the irrationality of home buyers

Despite recent reforms to stamp duty land tax in the UK, buyer and seller psychology continues to distort the efficient pricing of housing. Nathan Wilson, Research Analyst, Britian & Ireland explains. Click here to read more.

Assessing the European investment market

Following a record year for European investment in 2015, how has the market fared so far this year in comparison? Where are the opportunities in European property? David Rees, Senior Analyst, Continental Europe, takes a look. Click here to read more. 

We continue to expect Brexit to shave around 0.25-0.50% pts off global growth over the coming year, although the precise timing is likely to be determined by when the UK opens formal exit negotiations. The other main risk on the horizon is China, where the true scale of the country’s credit bubble is starting to be realised.

Recent data have shown a bounce-back in UK economic performance and expectations following the Brexit vote.  After initially dipping below 50, August and September PMIs have registered growth in all three main sectors (construction, manufacturing, and services).  Still, we anticipate the negative impact of the Brexit vote to start to show once the UK triggers Article 50 and begins formal negotiations to exit the EU, which the Prime Minister has announced is likely to be March 2017.

In China, concerns are growing over the state of the country’s credit market.   Private non-financial sector credit as a share of GDP rose from 117% in 2008 to 210% in 2016, the one of the fastest pace of credit expansion globally (Chart).  Investors are now questioning whether the funds were prudently invested.  Fitch Ratings recently estimated that bad debts are around ten times larger than officially acknowledged and could rise to up to a third of GDP. Around one in five loans in the country are non-performing. Turmoil in China’s credit market is a potential near-term cause of a Chinese hard landing.


The Japanese central bank unveiled a significant overhaul to their monetary policy strategy.  The Bank of Japan (BoJ) set a cap on 10 year bond yields of 0% and pledged to overshoot its 2% inflation target for a material length of time.  This is aimed at steepening the yield curve and giving companies an incentive to invest in long-term projects.  The success of this policy will depend on the credibility of the BoJ to hit its target, which it has failed to do since Abenomics was launched in 2013.

In the US, the Federal Reserve voted seven to three to maintain interest rates at current levels, with the three dissenting members voting to raise interest rates. August’s 151,000 jobs increase was far below average since the beginning of the year and economists’ expectations and wage growth moderated to 2.4%, down from 2.7% in July. Nevertheless the split among policy makers could indicate a rate rise is imminent. The next Federal Reserve rate meeting is only days before the presidential election on the 8th November, and the final meeting of the year is in the middle of December. Given the proximity to the election, we think December is the most likely time for a move, but this would require a string of positive inflation and labour market data throughout the remainder of 2016.

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