Moderately encouraging, this is how one could define the macroeconomic scenario outlined for the near future by the economists of the San-Paolo Agreement, for which, under various aspects, the foundations have been laid for a turnaround in the world economy.
Federal Reserve Chairman Ben Bernanke's words made it clear to the markets that the multi-year season of zero rates and abundant liquidity is entering its final phase. Although the recovery times are long, this has brought the normalization scenario back within the market's operating horizon, triggering an initial phase of rising medium and long-term rates. the return of medium and long-term real rates to positive levels does not make financial conditions restrictive in any way.
The lower growth of the monetary base will probably be compensated by a rise in monetary multipliers, moreover the Fed has unequivocally made itself available to an extension of the stimulus at the first negative signs. Growth should also accelerate due to the contraction of the negative contribution of public spending, aimed at reducing the expected deficit by 4 points of GDP in the 2013 fiscal year.
In the rest of the world, the future change in US monetary policy will have two opposite effects: on the one hand, the strengthening of the dollar should make foreign production more competitive; on the other hand, however, there will be negative effects on interest rate-sensitive demand components, as an effect of the correlation between interest rate curves: since the beginning of May, the German 50-year yield has risen by more than 88bp, against XNUMXbp for the US XNUMX-year . And, as we have seen in recent weeks, it is unlikely that the rise in interest rates in the countries of the European periphery will be automatically offset by a decline in risk premiums.
In the Eurozone, however, we are already witnessing a decline in the monetary base, usually a prelude to a possible rate hike. The peculiarity of the European situation, however, lies in the fact that the reduction does not occur due to a deliberate decision by the Central Bank to drain liquidity, but due to a drop in the demand for reserves by the banks. The latter are spontaneously returning excess reserves accumulated in the long-term refinancing operations of 2011 and 2012, and the decline in the monetary base is offset by an increase in multipliers; the dynamics of credit, in effect, is held back by a lack of demand and by the desire not to create non-performing loans, and no longer by liquidity or capital problems.
As regards the debt crisis, although it cannot yet be said to be overcome, the progressive "extinguishing" of the crisis hotbeds (the completion of the bail-in negotiations in Cyprus, the unblocking of the political impasse in Italy, the lengthening of the on the loans granted to Ireland and Portugal, in addition to the granting of more time for fiscal correction to several other countries) has allowed a marked decrease in the probability of evolution in an "extreme" sense of the difficulties.
In Japan, however, the fiscal stimulus is destined to be prolonged, with the declared final objective of an inflation rate of 2%. If the declared objective is also the official one, it will be possible to verify if and when inflation reaches the critical zone: then the contrast between monetary policy objectives and the need to guarantee the sustainability of the public debt will emerge. At least growth seems to be consolidating, thanks to the support of consumption and residential construction.
However, the Japanese quantitative stimulus is not a perfect surrogate for the US one, as has also been seen in recent weeks. Although it is reasonable to expect Japanese investors to increase their exposure to foreign markets, it is unlikely that this will offset the restrictive effect of the rise in US rates on European markets.
Among the emerging markets, macroeconomic control problems are growing in Brazil and China. Forecasts for Chinese growth have been cut, as a reflection of the uncertain trend of recent months and the adoption of restrictive measures on the liquidity front. For other emerging countries, the prospect of an increase in dollar rates is negative. However, the drastic improvement in the financial structure makes crises such as those that accompanied the Fed rate hike cycle of the XNUMXs unlikely, even if much attention will have to be paid to specific fundamentals.
On the raw materials front, a process of "normalisation" is expected, i.e. a return to the fundamentals of supply and demand as the main price guiding criterion. After the excesses of recent years, awareness of the unsustainability of the growth rates experienced by emerging countries and of the difficulty for liquidity to continue to play the leading role assumed so far seems to be gaining ground.
