The economy.

Anatole Kaletsky presented a very positive interpretation of worldwide economic development concluding that the ‘New Normal’ that is emerging, is looking very much like the ‘Old Normal’ with growth stabilising at near long-term trend. He also noted that if you looked at very long-term cyclical trends, that we might be entering a period of robust long-term growth. The US economy continues to lead and the signals remain positive with the period of large government spending cuts at an end.

Monetary policy.

During the ‘question and answer’ session that followed he did not profess any great confidence in the US and Eurozone monetary policy makers to guide us through the next steps in the recovery, suggesting that many of the proximate causes of the Great Recession had still not been addressed. He did have praise for the work of the Bank of England Governor Mark Carney and was also supportive of the Chancellor George Osborne’s ‘Help to Buy’ scheme which was likely to stimulate growth in the UK regional economies.  Anatole does not see a housing market bubble forming in the UK and also does not see interest rates above 2% for most of the remainder of this decade.

Risks.

Anatole also addressed what he saw as the key risks to the UK economy: (1) the Euro had been stabilised, but the Eurozone still had not begun to address the underlying issues related to fiscal, banking, monetary and political union; (2) sterling  appreciation undermining international competitiveness; and (3) emerging market performance (including China) which account for an increasing portion of world GDP.

China.

Despite considerable media attention to the formation of a credit bubble in China, Anatole was less worried, citing the very strong Chinese trade balance, a banking system that was essentially an extension of central government, and a massive amount of foreign reserve and debt holdings. The Chinese government is very focussed on the debt issue, but consider it a lower priority than an orderly cooling of the economy. Anatole sees no crisis for the next 2 to 3 years.