..Might be about to get a little less bleak. The phases of threat and subsequent remedy have continued to play out in this rather troublesome past year. The threat of inflation, whilst written off as a passing phenomena, eventually received its antidote of monetary policy adjustment. So too now is the threat of energy provision particularly in energy import dependent Europe set to perhaps step into the remedial phase. That could all be positive for markets and risk. The Czech Republic currently holds the rotating presidency of the Council of the European Union. This affords it some might in determining the legislative agenda and policy direction of the executive arm of the Union. It appears to have chosen to use this opportunity to attempt to achieve an intergovernmental solution to the energy crisis.
In the United Kingdom also, there is increasing pressure upon the government to take action to protect UK consumers and businesses from rising energy prices. The government appears to have been softening to that particularly in the run up to the leadership election with opponents Liz Truss and Rishi Sunak vying for position. Whilst at the government level, the energy crisis will still have enormous costs, it is expected that by insulating consumers and businesses economic growth may be preserved more effectively. Some clever accounting may also mean that headline levels of inflation later this year are far less severe than they have recently been forecast to be.
There is further optimism for the global economy to be found from China once again. As we have discussed recently, the support that China is bringing to its economy has been demanded by the continued under performance of its economy. At the same time, if successful, this boost to Chinese growth could also provide support for the global economy given China’s significance and role in the global economy. Therefore, the economic stimulus that it announced yesterday for a further 1 trillion yuan of stimulus could be seen as another light at the end of the tunnel. It is likely however that domestic authorities will need to go considerably further than that to make a material change.
Discussion and Analysis by Charles Porter
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