THE WORLD ECONOMY IS INFLATION RECOVERING, AND THE TALK AMONG ECONOMISTS IS NOW MUCH MORE ABOUT INFLATION
Jonathan Bradley THE ECONOMIC AIM: A SAFE MIDDLE COURSE
Jonathan Bradley WORLD GDP GROWTH 2003 AND 2004 STRONGER!
Jonathan Bradley JAPAN PUTS OUT THE FLAG u After more than a decade of stagnation, Japan looks as though it has turned the corner. u At last Japan has become more normal!
Jonathan Bradley What is now driving the recovery? u Very low interest rates u Continued expansionary fiscal policy u Recovery in company finances u Buoyant consumer demand u Some stock market recovery
Jonathan Bradley GLOBAL SHORT TERM INTEREST RATES Source: IMF
Jonathan Bradley BUDGET DEFICITS COMPARED 2004 (est)
1: HOUSE PRICES IN BRITAIN u Are they too high? u Is there a bubble? u Will they fall? u What will happen if they do?
Jonathan Bradley u STOCK MARKETS AND LAND PRICES GO UP FAR TOO MUCH u BUBBLES!! u WHEN THEY BURST ECONOMIES SUFFER
Jonathan Bradley Impact of 10% house price fall 4.7 3.6 3.3 5.0 4.5 5.0 4.5 5.0 4.5 2004Q4 2005Q4 2006Q4 Interest rates 1.5 1.3 0.8 1.5 1.1 0.6 1.5 1.0 1.5 1.7 2004Q4 2005Q4 2006Q4 CPIX inflation 3.0 1.9 2.4 3.0 1.2 0.7 3.1 2.2 1.6 3.1 2.8 2.3 2004 2005 2006 GDP growth Wealth & confidence Wealth effects Wealth & confidence effects with monetary response No monetary response OEF central forecast Source: Oxford Economic Forecasting LOOK AT THE RED NUMBERS
Jonathan Bradley 2: HUGE CONSUMER DEBTS! Total UK, May 2004: £993 BILLION
Jonathan Bradley SO, WHAT NOW? In the world: u Little danger of deflation u Growth generally healthy u Main threats from energy prices and politics In Britain: u Still strongest growth in Europe, BUT u Highest interest rates in Western Europe u Main threats political and from a housing asset price bubble