US shredding economy raises concerns on QE 3
RT: What is wrong with global investor confidence, if there is such a thing today?
CW:Well, as you say, we’ve had a series of disappointing or weaker-than-expected economic data points in major economies from the US, Europe and China, and that’s undermined expectations that economic growth would accelerate this year. Where we’re at right now and what we see in the markets is just reflecting the fact that optimism for even faster growth coming into 2012 is now giving way to a more sobering reality that we’re still struggling to stay just above the positive line.
RT: Where is the root of the problem, would you say right now?
CW: Well we’ve plateaued, is the best thing you could say, we’ve had a very steep recovery from a very steep crisis, starting in the middle of ’08. We’ve now kind of reached this plateau, or shelf, as it were, and it’s just difficult now to see what’s going to take us up the next leg of recovery. There’s a lot of discussion about the ending of the Quantative Easing in the US this month and whether or not a third bout of easing may even be required to propel the economy forward, but that’s big question that economists and investors are looking at, saying “What is there to drive this market higher?” Nobody’s really worries about a reversal or a double-dip or return to a recession, but there’s a serious question over what’s going to drive us forward from here.
RT: Is there going to be a new round of Quantative Easing in the US?
CW: I think the bottom line is that, with next year being an election year, if it needs it, it’ll get it, even tough economists and agencies have been highly critical of the amount spent, or wasted, so far, but I think if economic indicators start to slow down even more than we’ve had and job creation slows down, then I think there’ll be a lot of pressure on the Fed to go for another round of Quantative Easing. So, I don’t expect it too quick, I think there’ll be a pull-back at the end of this month when QE2 ends to review the situation. I think they’ll make a decision in the autumn based on the strength of the economic indicators at that time.
RT: With the high commodity prices, why isn’t Russia faring better than it is right now?
CW:Because I think the perception of Russia has changed quite a lot. If we go back before the crisis, rising oil would have lifted all Russian asset prices, the rouble, the banks for example would all be a lot higher, but investors had a very sobering reality check in the second half of ’08 when oil collapsed so quickly, and everybody is very focused on the fact that Russia is still highly vulnerable to commodities, highly vulnerable to the oil price, and therefore very highly vulnerable to what happens in Washington and Beijing, more than, say, what happens in Moscow. The bottom line is that Russia has not really made any material progress in transforming its economy from a resource-based economy to a more diversified economy. The domestic case, therefore, is quite weak fiscally, and the budget is improving with oil, but that’s it. Investors, I think, will remain reluctant until they actually see real progress on the promised reforms, and we could be a year at least away from that.