Fear of the slowdown

Brexit has been kicked down the road again, this time until Halloween. The conditions of the extension are not very attractive for Great Britain and one may continue to hope that the present withdrawal treaty will be accepted after all. Nor should one now any longer rule out political consequences for Theresa May.

A disorderly Brexit has thus been circumnavigated once again. From the central banks’ point of view this is undoubtedly a very welcome development: if one of the current pollical risks were to materialize, it could significantly disrupt the fragile growth environment. An appreciable deterioration of the economic situation would in turn pose an almost unsolvable problem for most central banks. If they act proactively, they will soon come up against their limits and could be obliged to take ever more unorthodox measures. This could unleash a crisis of confidence. But if the central banks were to remain (too) passive this would pose the same risk.

There is, however, some upbeat news from the economic side: the positive signals for the Chinese economy are increasing. The government in Peking has reacted to the strains of the trade dispute and has initiated a whole raft of measures. These are now slowly having an effect. Overall, in the medium term this should also have a slightly positive effect on the global economy. Our growth forecasts already anticipate these effects and they do not offer any upward potential. But the financial markets’ partially soured sentiment as regards economic growth could improve again somewhat.

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