Open Thread: Deflation, Am I Bovvered?

And so it has come to pass: nearly eight years after the financial crisis started, and despite years of QE, the UK is suffering deflation.

Or are we really suffering at all?  With the election safely behind them, will Osborne + Carney let rip?  Is this the strategy for 2020?  Or will the oil price take care of any slack in the economy?

Go for it, C@W people!

ND

So much for the Santa Rally in 2014

 

So much for the Santa Rally this year. Normally Fund Managers and other asset investors are keen to lock in their gains for the year  to get their all important bonus' paid. This means that quite often the FTSE and other world indexes end the year at their highest point - often only to have a bad month in January when the managers come back to work and take a look at reality. 

This year though the collapse in the oil price, trouble in Ukraine and across Syria and Iraq, together with slowing growth in China and no growth in the Eurozone has well and truly spooked the markets.

Instead of a Santa Rally, we have a Christmas collapse, with little sign of much news getting better as the above intractable situations are no closer to being fixed. Indeed, all may get worse before they get better.

Having said that, Oil prices will feed through to growth in the West as they act as a benign deflator of goods and services - it will take one or two quarters to feed through so we won;t see it until March or so next year, but it should be worth up to 0.5% GDP for an industrialised Western country. 

With the markets more or less closing at the end of this week, there is not much time for a turnaround so it looks like it will be a losing year on the FTSE with UK GDP growth at 3% - a very odd turn out that. 

BRICS Up Against The Wall

As the Turkish Lira sets slowly in the west ...

Well, not so slowly.  And investor sentiment turns on a sixpence (strange - they always know these things can happen ...)  - I am aware of one big private equity power plant deal that has foundered because of this very recent currency volatility: and the Turks need power plants - lots of them.  These are the kind of crises-in-confidence that spiral downhill quickly.

Ambrose in the DTel paints an ugly picture:

World risks deflationary shock as BRICS puncture credit bubbles As matters stand, the next recession will push the Western economic system over the edge ... Eurostat data show that Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May, once tax rises are stripped out. Underlying prices have been dropping in Poland and the Czech Republic since July, and France since August.  

Wow:  here we go again ?  One could imagine quite a flight of capital (to the extent people can get it out of places like China and Russia in times of crisis) and we all know where that ends up.  UK house price bubble, anyone ?

And a holiday in wonderful Istanbul ?  By-passing Taksim square, perhaps.  

ND