Wednesday, 25 November 2009

Predicting the Economy.


I was in Monaco this week for a  conference  of people involved in  Alternative  Investments.
I spoke about the medium term prospects for the world economy. The OECD has recently produced projections for growth rates between 2011 and  2017. The contrasts are  quite marked.  Whereas they predict growth rates of 6.7% per year for Turkey over the period and  4% each  for Mexico and Australia,  they  expect  annual  growth rates in Portugal to be only 1.2%, Germany only 1.6% and 1.8% in France.  At that rate, some of the Turkish immigrants in Europe could be  going home to find work.
I foresee rapid growth continuing in China, India and Brazil. The consumer demands of  low to middle income people in these countries will determine  where business opportunities in future.  Their  needs will  replace the  jaded demand from  high income  consumers in the  West.  The Tato Nano economy will replace the SUV economy.

I believe taxes will tend  to increase in  western countries because Governments will find it too  difficult to reduce  wages, welfare payments and health entitlements, which is  what they would have  to do if they were to reduce  public  spending rather  than to increase taxes.

The reform of the  system of financial regulation will be a  priority, even though it is a question of  slamming the  stable  door  after the horse is gone.
 Increased  supervision of banks and other  such  entities  has a  limitation. Of its nature, It is looking at what has already  happened . Therefore I favour simply  banning some practices outright, such  as proprietary trading  by deposit taking institutions.  At the end of the day, deposit taking institutions  are guaranteed by the  taxpayer, so they should be  banned from  gambling.
I also think  that it is vital that the European  Single Market for finance be not  sacrificed. The fact  that  taxpayers in individual countries have had to bail out  their own banks for losses they incurred in other countries may  lead to  restrictions on  cross border banking in future. That must be avoided.
 We must  either  create an EU wide  deposit guarantee system,  or an accepted and  pre agreed  system  for sharing the burden   between Governments  of  winding up   banks that have failed  that were active in several EU countries .

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