Record US debt can lead to a reduction in GDP of this country is already in 2020-2021 years. However, due to high budget deficit of the United States, the dollar’s share of global reserves likely to fall to 50% in the next 10-15 years. About it in exclusive interview to RT, said the head of macroeconomic analysis Saxo Bank Christopher Dembeck. According to him, is known for its “shocking” forecasts for the Danish investment Bank also expects the growing popularity of the yuan in the world, and notes the improvement of the financial sector.
“In the US everybody expects a recession”
— The slowdown in the global economy — one of the most discussed topics today. Against this backdrop, some analysts are increasingly talking about the threat of another crisis in the United States. As you consider whether States may face a recession in the near future?
— There are many important indicators, helping to build forecasts of recessions, and they all indicate one and the same. Yes, the business cycle in the United States comes to an end, and this is not news. The risk of crisis there, and from year to year are growing.
Of course, I don’t expect that the US will face a recession this year, but experts agree that in 2020-2021 years is possible. Everything is logical: the country’s economy quite a long time recovering. Now there are problems associated with the debt level, especially in the private sector.
In fact everyone is expecting a recession, because they realize that we watched the longest recovery period in U.S. history. It possesses no fiscal and monetary levers that can accelerate the rate of economic growth therefore will be slow.
In 2018 Saxo Bank in its ranking of “shocking” predictions predicted that Donald trump can fire the head of the us Federal reserve’s Jerome Powell. How do you evaluate the probability of the unprecedented resignation of the head of the fed?
— To date, we believe that it is extremely unlikely. However, as we know, is now the main threat to global monetary policy is that in a short time the Central banks may lose their independence. And just USA is a vivid example. Voiced in the administration of trump’s intention to dismiss the head of the fed Jerome Powell was a political move.
While similar stories happen in other countries. For example, in India, where Reserve Bank Governor was ousted in connection with discontent of the government. In recent years, the situation is similar around some European Central banks: about the same we saw a couple of years ago in Cyprus.
By the way, some of the candidates from the Democratic party, standing for election 2020, I believe that Central banks should be independent entities.
In my opinion, this decision will have adverse consequences, because the independence from policy allows you to make decisions and to fight inflation, and if in a fairly short time, the Central banks lose it, we should expect negative macroeconomic consequences.
— At the end of the 2018 world collapsed the stock market because of the policies of the U.S. Federal reserve to raise interest rates. This year can happen?
— On the stock markets of the developed countries is extremely high level of volatility. It is not associated with macro-economic indicators of States and actions of Central banks, because Central banks of these countries do not acquire the asset on the market. In General, the volatility associated with the operations of share repurchases. Many companies, especially in the United States, the repurchase of own securities. Of course, while this practice persists, it will have a positive impact on developed markets.
But in emerging markets the situation is different. The problem is that since the beginning of the year the quotations of these countries showed quite positive dynamics, however, I think in may they could have a negative impact appreciation of the dollar and oil. Most likely, investors prefer safe assets. So maybe may and throughout the summer, emerging markets will be difficult to achieve a good momentum.
“De-dollarization is low risk”
— With the fluctuations of the stock quotations of 2018 also is remembered for a sharp change in oil prices. As the cost of energy may change before the end of 2019, given that OPEC+ seriously reduce its production, and the US record increasing?
To give long-term forecast for oil prices is always difficult, because the market is heavily influenced by political factors. In recent months, prices went up significantly, but I doubt that this trend will continue.
A good indicator of the growth in oil prices is the canadian dollar, but over the last month and a half he barely strengthened against the U.S. currency.
I think investors just don’t believe in the continued increase in oil prices. This stems from the expectation that Donald trump may once again via Twitter to Express dissatisfaction with Saudi Arabia, which helps to keep low the price of oil.
Probably the cost of a barrel of oil soon stabiliziruemost because it now needs the whole world. Today we see a slowdown in global GDP growth and the persistence of high oil prices in the US and Europe has a negative impact on economic activity. So Donald Trump for success in the next election need low oil prices. In my opinion, you should wait for stabilization of the quotes near $65-70 per barrel.
In recent years, the share of US dollar in international reserves has been steadily declining. This increases the share of the Euro and the yuan. How do you think what is this position of the world’s Central banks?
We observed long-term process which will probably last decades. We are talking about de-dollarization, which occurs in Russia, China and many other economies.
First of all, countries want their national currency was used at the international level.
For many investors including Central banks, de-dollarization is the ability to minimize the risks associated with the budget deficit of the United States.
The US budget deficit continues to grow, and it is clear that at some point, maybe in 5-10 years, there will be some problems. Therefore, the de-dollarization allows you to diversify reserves and to partially mitigate the risks associated with the U.S. budget deficit.
However, I would not bet on the Euro, because, speaking about the risks, the European currency is not a good alternative to the dollar. An interesting variant of the Chinese yuan.
China in this respect has made great strides in recent years. For example, has put the oil contracts provide for payment in yuan. Gradually, though very slowly, we move to the fact that China will make its market open.
— How can change the position of the dollar, the Euro and the yuan in global reserves in the next 5-10 years?
Every ten years the us dollar will remain the reserve currency: it will account for at least half of all world reserves, since de-dollarization is not instantaneous.
However, the share of us currency will decline and probably in 10-15 years will reach 50-55% of world reserves.
The chances of the European currency I am also pessimistic estimate. Foreign investors, particularly Americans, do not trust the Euro. Too many problems in the EU, and we Europeans, well see it with my own eyes. So Euro is not the best option for investment in the next 10-15 years.
The Chinese government has set a target to increase the share of national currency up to 10-15% from the current 2%, so time will be considerable. As you know, in China, many economic and financial risks. So, if you look objectively, the increase of the yuan’s share to 5% in the next five years can already be considered a great achievement.
— In the list of “shocking” predictions Saxo Bank also predicted the advent of the industrial crisis in Germany and the fall of the economy by the end of 2019. To date, stagnation was the industry across the Eurozone. How do you think, can the whole region to face the economic recession before the end of the year?
— As a rule, the deplorable state of a key (in this case German) economies of Europe causing recession throughout the region. Germany accounts for about a third of the total European production, and it plays an important role. Now German industry is going through extremely difficult times. We can say that in this sector there is a recession.
The second factor that could cause economic recession in the Eurozone is extremely hampered access to loans. However, so far flexible monetary policy and low interest rates facilitate access to credit. I think that in the current year, the recession in Europe will not come, but the level of economic activity will be very low.
“The ruble is quite stable”
— The IMF called healthy macroeconomic situation in Russia. What GDP growth rate you expect Russia to 2019 and in subsequent years?
— GDP growth in Russia will depend on the dynamics of oil prices. If this figure would be $65-70 dollars per barrel, I think the Russian economy will be affected favorably.
The exchange rate of the Russian Central Bank over the past few years have led to impressive results. The financial sector is gradually getting stronger.
Russia and most countries have an understanding that no stimulus measures can have a positive impact on the economy in the conditions of instability of the banking sector.
In this sense, the worst scenario is observed in Italy — how much money in the economy or joined because of the troubled banks, the beneficial effect can not be expected.
Thus, the activities of the Russian Central Bank over the past few years is clearly constructive.
In my opinion, Russia still needs much more to diversify the economy that is no news, after talking about it for many years. I think your country will take a long time, since it is impossible to create a new industry.
In many countries whose economies are tied to the export of energy resources, decided to focus on overly optimistic forecasts for oil prices. The Russian government in this regard raises a very cautious target, which allows you to create a balanced budget.
— How do you assess the dynamics of the Russian currency?
— The last time the ruble is fairly stable, and I expect that this stability will persist, if only, say, in the second half of the year will not be a sharp strengthening of the U.S. sanctions. Currently, however, that nothing portends. The administration of the tramp focused on China and the European Union.
Stability is a key factor in the market foreign exchange transactions. The main thing — not a lower exchange rate to aspire to a country and its stability, and what I expect in relation to the Russian currency. Stability — is in itself a positive aspect for foreign investors, and should not seek to cheap currency for exports increase, because there will always be States that are in the best position.
“Not to dwell on the amount of wealth”
— Returning to the list of “shocking” predictions, Saxo Bank predicted that in 2019, Apple could buy Tesla, as the IMF and the world Bank will waive the measurement of GDP. Which of the predicted events do you still expect?
— This year, none of these predictions will not come true. I don’t think anyone wants to buy a Tesla, given the level of its debt and disappointing recent data. Their technology is amazing, but running a company badly.
In Saxo Bank we believe that GDP is not the best indicator of the state of the economy. In many countries, the society protests against growing inequality, while the people responsible for setting policies, do not pay attention to this problem, and only follow economic activity. In their opinion, a strong enough economy to global prosperity.
We know that the IMF and the world Bank have gradually come to the understanding that it is more correct to assess the welfare of the population, and not to focus on the volume of created wealth — that is, GDP. It will take some time. We already have a set of specific tools, which, of course, should be improved. I think this transition is just a matter of time.
— Can you reveal some details of the new “shocking” events that can happen in the world economy in 2020? What are the signals you should pay attention now?
— You need to pay attention to the still growing worldwide financial bubbles. So, in some countries it is possible to feel the negative impact of a bubble in the real estate market.
There are bubbles on the securities markets. Dynamics on all financial markets of the world clearly says that the value of the assets on them are too high. So, the situation on the American stock exchange is highly dependent on innovative technologies — really have an effect on only 5-6 companies that the good does not promise.
In my opinion, all markets of the world, and primarily American, overrated, what is spoken by almost all financial indicators. On exchange the USA was under threat of refusal of investors to work with her. All in low rates of Facebook or Google, or in the influence of politics on financial markets.
Need to monitor the situation on the financial market of US, because now there is a risky situation, and in the coming months, significant improvements can be expected.
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