Economic Update

USA

In the last Federal Reserve Chairmans Statement a distinction was made between expected asset purchases
moderating in 2013 before stopping in 2014 and increasing the federal funds interest rate in 2015. Automatic
Government budget cuts have been delayed till September 30th in the hope of an agreed resolution. Both these
measures are expected to slow the growth of the economy especially as lending criteria remains strict. However a
normalisation of long term interest rates help to promote confidence.

Eurozone

Governments with unreasonable market borrowing rates can have unlimited refinancing from the ECB as long as
agreed austerity measures are in place. Decreasing fertility requires increased productivity or immigration for
economic growth. The majority of the polarized electorate now appreciate Government spending will only increase
taxes for the diminished next generation. Whilst EU regulation constrains the free market, high unemployment and
inflation concerns remain.

Japan

An ageing population spend their savings and a small bubble of workers at their most productive assist economic
growth. The LDP’s return to power provides a mandate for the Bank of Japan to increase it’s inflation goal to 2%
and weaken the currency. Immigration controls need to be drastically relaxed to promote an improvement in the
long term economic growth rate. Unnecessary Government spending and borrowing are now reaching punishable
levels. Publicised structural reform awaits.

China

A large proportion of the working population will move into retirement, due to the one child policy. Chinese growth is
therefore expected to slow and could even decline over the next decade and a half. Even so China’s developing
consumer sector benefits from jobs in global manufacturing, attracted by cheap labour costs and traditional work
ethic. The Government sees extended lending for large companies, wealth management and speculative
investments and seeks to redirect this to small and medium sized enterprises, which is proving difficult.

UK

The Conservative/Liberal coalition commitment to maintaining Government borrowing at sustainable levels has
waned. Mark Carney is expected to restore the credibility of the Bank of England with monetary and regulatory
discipline. Government policy continues to promote house prices at unrealistic levels for the majority of citizens and

indicates that Labour will win the next election.

     

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