全球经济走向何方
The economy is worse than you hoped but better than you think (893 words)

by Gavyn Davies, January 16, 2015 7:15 pm

Though Europe faces deflation, the fall in oil price is a boon for consumers

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The oil price has fallen by more than half in a little over six months, and you might expect investors to be cheering. Perhaps they would have been — had the result not been a precipitous drop in inflation.

A flight to the safety of government bonds has caused yields to fall lower than they have been at any time other than the darkest days of the euro crises of 2012. Although stock markets are still only 3.5 per cent from their all time highs, they have become a lot choppier. Prices are bouncing up and down, suggesting investors have become more nervous about the prospects for economic growth.

Economists believe the fall in the oil price was triggered mainly by an increase in the supply of oil, following a rise in US production, and the decision by Opec to keep output high. Standard economic models suggest this should boost global output by between 0.5 and 1 per cent this year, if present oil prices are maintained. There will be significant losses among oil producers — but even bigger gains to oil consuming households and businesses.

Investors initially accepted this, sending equity prices higher outside the energy sector. But lately, they have become sceptical, as inflation expectations have fallen off a cliff — for reasons that are not obvious, if the oil shock really is a boon for economic growth.

The answer lies in the eurozone. Although lower oil prices should have boosted growth there, the economy keeps crawling along with growth of less than 1 per cent, and inflation expectations have been torn loose from the European Central Bank’s inflation target of below but close to 2 per cent. A deflationary process — in which consumers put off spending money because they expect prices to fall, companies cut prices to lure people into the shops, and households sit tight because their expectations have been confirmed — may be taking an inexorable grip on the single currency. The consequences would be disastrous, and far-reaching.

Mario Draghi, the ECB president, is aware of this threat, and has strongly hinted that the central bank will begin quantitative easing — that is, purchasing sovereign bonds with newly created money — at its meeting this coming Thursday. This week the European Court of Justice indicated that such bond purchases are likely to be deemed legal under the EU treaties, subject perhaps to some minor safeguards.

Meanwhile, the Swiss National Bank unexpectedly decided last Thursday to allow its currency to move freely instead of keeping its value below a predetermined cap. This has been taken as a signal that Swiss central bankers are unwilling to soften the fall in the value of the euro that is likely to occur when the ECB starts buying bonds. The alternative was to print Swiss francs in large quantities and use them to buy euros, so that — relative to one another, at least — the value of the two currencies would stay the same. But a glut of francs would have created the risk of instability in the Swiss financial system, and it would have exposed the SNB to losses on its foreign exchange reserves if it had been forced to backtrack later on.

Whatever the motives, the SNB’s action has added to the jitters in financial markets. Its volte face leaves traders wondering whether they can take central bankers at their word when they promise unlimited intervention to meet an announced goal. Many investors are becoming sceptical about the efficacy of QE, even in “unlimited” quantities. This will be grist to their mill.

It will not, however, stop Mr Draghi from announcing sovereign bond purchases next Thursday — probably about