The sun was shining last week in Washington, DC during the Annual Meetings of the International Monetary Fund (IMF), but the imminent US elections cast a shadow over the meetings of the Finance Ministers, Central Bank Governors, and private sector economists and finance professionals from all around the world who gathered in town. The better-than-expected state of the global economy was obscured, and all other conversations relegated to second or third billing, including the IMF’s usual warnings about various dangers (excessive debt, insufficient growth, protectionism), the outlook for Europe (improving), for China (as well), for other EM (generally good) and digital finance (further gaining status).
On the US elections, those hoping to get a better sense of the likely outcome will have been disappointed. While both camps profess to have the lead, too close to call is the verdict for the White House, while the Senate is deemed likely to flip Republican and the House likely to align with the White House result. This would imply a Republican sweep in the event of a Trump victory.
Yet, some trends are clear whoever wins the White House: more economic fragmentation, more US public debt, more US exceptionalism acting as a magnet for foreign investment, a stronger dollar, and higher US interest rates, with the difference between the two candidates being one of degree rather than substance on economic matters. Where the two candidates differ more radically is in the area of defense and foreign policy, which ultimately also has economic implications for US allies. Overall, while US participants were generally sanguine about the country’s economic prospects, participants from around the world went home with a sense of foreboding and need to prepare.
European policymakers welcomed the rapid disinflation registered without hit to their labour markets. Though the expected rebound in consumption has yet to materialize, they remained hopeful it would eventually do so and dismissed recession fears. With risks to inflation now seen as evenly balanced, a debate emerged about the potential for accelerating the pace of easing. However, at this stage, this seems a small minority view, not ruled out but a high bar to clear, requiring a material change in inflation projections. Labour market conditions will be an important indicator in that context. It was also clear that the diagnostic set out in the Draghi report about the urgent need to boost Europe’s lackluster productivity growth is in fact widely shared. Views differ more on the remedies, but I left Washington more optimistic that action will be taken.
China’s stimulus was another topic on which clarity remained elusive. While there has clearly been a shift in thinking at the top of the state on the need to stimulate the economy, expert China watchers disagreed on the ultimate effectiveness of the measures likely to be deployed. Beyond China, emerging markets policy makers also generally expressed satisfaction with the state of their economies and, to varying degrees, progress in bringing inflation down. But they were bracing themselves for the negative spillovers that would likely arise if US economic policies took a further expansionary, inflationary and protectionist turn. They noted with concern the underlying trend toward less free trade and investment regimes, notably in developed economies, and foresaw a world economy fragmented into blocs. Seeking greater integration within such blocs was seen as a partial remedy.
Digital finance, after years of being a trendy but somewhat fringe topic at the Meetings, seemed to be coming of age, at least judging by the seniority of policy makers discussing it in multiple panel discussions across town. Views continue to differ across jurisdictions on the need for central bank digital currencies for retail usage, but increasingly the focus is on how rather than if. Opinion is less divided on the benefits of digitization of wholesale finance— not just for payments but also settlements and potentially a whole range of wholesale financial transactions. In this area as well, policymakers are hoping —and working towards— resisting the fragmentation forces at play at in the geopolitical arena.
Many commentaries written this past week lamented the weakness of the two host institutions, the IMF and the World Bank, but in truth helplessness seemed widely shared among participants as they witnessed the ebbing of multilateralism and the global rules-based economic order, and pondered how to make the most of whatever comes next in their respective spheres of competence.
BNP Paribas is regulated by the FSA for the conduct of its designated investment business in the UK and is a member of the London Stock Exchange. The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other investment. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient, they are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. No BNP Paribas Group Company accepts any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. All estimates and opinions included in this report constitute our judgements as of the date of this report. BNP Paribas and their affiliates ("collectively "BNP Paribas") may make a market in, or may, as principal or agent, buy or sell securities of the issuers mentioned in this report or derivatives thereon. BNP Paribas may have a financial interest in the issuers mentioned in this report, including a long or short position in their securities, and or options, futures or other derivative instruments based thereon. BNP Paribas, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report. BNP Paribas may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer referred to in this report. BNP Paribas, may to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis on which it was based, before its publication. BNP Paribas may receive or intend to seek compensation for investment banking services in the next three months from an issuer mentioned in this report. Any issuer mentioned in this report may have been provided with sections of this report prior to its publication in order to verify its factual accuracy. This report was produced by a BNP Paribas Group Company. This report is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of BNP Paribas. By accepting this document you agree to be bound by the foregoing limitations. Analyst Certification Each analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the analyst's personal views about any and all of the issuers and securities named in this report, and (ii) no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein. United States: This report is being distributed to US persons by BNP Paribas Securities Corp., or by a subsidiary or affiliate of BNP Paribas that is not registered as a US broker-dealer, to US major institutional investors only. BNP Paribas Securities Corp., a subsidiary of BNP Paribas, is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. BNP Paribas Securities Corp. accepts responsibility for the content of a report prepared by another non-US affiliate only when distributed to US persons by BNP Paribas Securities Corp. United Kingdom: This report has been approved for publication in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas London Branch is regulated by the Financial Services Authority ("FSA") for the conduct of its designated investment business in the United Kingdom and is a member of the London Stock Exchange. This report is prepared for professional investors and is not intended for Private Customers in the United Kingdom as defined in FSA rules and should not be passed on to any such persons. Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch, or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions permitted by regulation. BNP Paribas Securities (Japan) Limited, Tokyo Branch, a subsidiary of BNP Paribas, is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association. BNP Paribas Securities (Japan) Limited, Tokyo Branch accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch. Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong Branch is regulated as a Licensed Bank by the Hong Kong Monetary Authority and is deemed as a Registered Institution by the Securities and Futures Commission for the conduct of Advising on Securities [Regulated Activity Type 4] under the Securities and Futures Ordinance Transitional Arrangements. Singapore: This report is being distributed in Singapore by BNP Paribas Singapore Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Singapore is a licensed bank regulated by the Monetary Authority of Singapore is exempted from holding the required licenses to conduct regulated activities and provide financial advisory services under the Securities and Futures Act and the Financial Advisors Act. © BNP Paribas (2011). All rights reserved.
Recommended Content
Editors’ Picks
EUR/USD holds near 1.0850 ahead of key inflation data
EUR/USD struggles to build on Wednesday's gains and trades in a tight channel at around 1.0850 in the European session on Wednesday. Market participants await key inflation data releases from the Euro area and the US.
USD/JPY falls below 152.50 after BoJ event
USD/JPY stays under bearish pressure and falls toward 152.00 on Wednesday. The Bank of Japan (BoJ) left its policy setting unchanged but Governor Ueda noted that the impact of foreign exchange rate on prices had become larger than in the past.
Gold holds near $2,780, looks to US PCE Price Index for fresh impetus
Gold stays in a consolidation phase after setting a new record-high of $2,790. US political jitters and Middle East tensions might continue to act as a tailwind for the XAU/USD. Traders keenly await the release of the US PCE Price Index before placing fresh directional bets.
Uniswap Price Forecast: Technical outlook suggests a bullish breakout ahead
Uniswap is trading slightly below $8 on Thursday after rejecting a key resistance level on Wednesday. A successful close above this threshold could indicate a rally for the decentralized exchange, bolstered by technical indicators showing a bullish crossover pointing to potential upward momentum.
German economy surprises in the third quarter
The German economy avoided a technical recession in the third quarter, showing unexpected growth. However, this does not change the fact that the economy remains stuck in stagnation.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.