BofAML: Curvas peligrosas y el poder de la política fiscal (Global Economic Weekly)

Redacción - Viernes, 29 de Julio

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Global Economic Weekly: Kinky curves and the power of fiscal policy
•   A simple IS-LM framework illustrates why monetary policy is becoming less effective over time...
•   ...and why fiscal policy is becoming more effective over time.
•   Fortunately, fiscal policy makers have woken up, with easing in many key economies and with plenty of room to ease further.

Global: kinky curves and the power of fiscal policy

A simple IS-LM exercise confirms concerns about reduced monetary policy effectiveness in the major economies, but also shows that fiscal policy is likely more effective than normal.

United States: the cap on capex

Despite record profits at the start of the recovery, business investment has been only modest. We estimate a model which suggests the capex trend is in line with profit growth and credit conditions. A recovery in profits could lift capex growth, but election uncertainty poses a risk.

Euro Area: declining sovereign debt is a "tail risk"

Public debt profiles remain fragile, made sustainable by an extraordinary monetary set-up. In our benchmark case, with low interest rates for some time, debt profiles peak soon and come down very slowly. With a more holistic approach our benchmark case, from a risk management perspective, is actually a very favourable tail risk scenario.

China: government debt: a risk of financial crisis or roadblock to recovery?

The general government debt level is still low in China, and local government debt growth has slowed. Our analysis shows a strong public-sector balance sheet, implying limited risks of fiscal meltdown or SOE-triggered crisis. We think the risk of high public sector leverage accumulation is that it could become a roadblock to growth recovery.

Latin America: a brave new world

In Brazil, no fiscal news is expected until the impeachment process is over. The Brazilian Central Bank reaffirmsits relatively hawkish stance. In Colombia, we expect BanRep to hike 25bp as inflation remains stubbornly high. In Mexico, the inflation-growth mix continues to worsen and we expect a deceleration in economic activity in 2H16.

UK: BoE steps up, but what will it serve?

The case for stimulus is clear. Limited monetary firepower suggests to us the BoE should: do too much, do it early and do everything. So we look for a 25bp rate cut, £50bn QE and 'credit easing' measures next week. We would not be that surprised if the BoE didn't do QE though.

 

 
See report (attached) for further information.

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