Concluding our countdown to Christmas, Solomon Nevins discusses 'Trumponomics' and what the US President-elect's planned infrastructure spending means for other developed economies.
It is now more than eight years since the global financial crisis and the developed world is still dogged by low, albeit stable, growth. We have had a sustained period of ultra-low and supportive monetary policy from central banks in an attempt to stimulate growth in developed markets.
Arguably, this has not provided the economic growth central banks had hoped for. Loose monetary policy was successful in controlling systemic risk to the banking system, but less so in promoting economic growth in developed markets.
In October, the International Monetary Fund (IMF) warned this year was the fifth year global GDP had been below its long-term average of 3.7% and that next year would be more of the same, with only 3.4% predicted.
The IMF also stressed that, unless central banks take strong policy action, this could be a perpetuating cycle of 'lower for longer'. So many have been questioning if central banks are still the answer. Negative rates and glacial growth rates in large parts of the global economy, such as Japan and Europe, point to the fact their policy is not working.
We are now in a position where central bankers are passing the baton to governments in order to stimulate growth. This is where fiscal spending comes in, in the form of government spending and even reduced taxation.
Fiscal stimulus is part of Japan's ‘Abenomics' and European Central Bank (ECB) president Mario Draghi has called for more of it in Europe, although there is split opinion, with Germany against it and France more keen.
At the same time the ECB has been reducing the rate of its quantitative bond purchasing programme for 2017, from €80bn (£68bn) a month to €60bn, suggesting a move away from monetary measures.
It was very clear from Donald Trump's victory speech that infrastructure spending is going to be at the forefront of the US economic and political agenda, and he has suggested a large fiscal boost to the tune of $500m (£405m).
Since his election, there has been a rally in stockmarkets, signalling the start of a pro-growth narrative. Even the Organisation for Economic Co-operation and Development has forecast the President-elect's infrastructure plans would increase US growth.
We believe this could be the start of a wave of fiscal stimulus announcements in developed economies, with commitments to increased spending on infrastructure going forward.
Importantly it could turn the tide for global growth as many have predicted the Trump administration with his ‘Trumponomics' could help the world economy grow faster over the next few years. So, if the US is a hint to the future, central banks could be losing their pivotal position in the campaign to boost global growth.
Solomon Nevins is senior investment manager at Architas
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