Financial Outlook with Christian Keller, Barclays
On Tuesday 14 February, the BSCC had the pleasure of welcoming members to a financial outlook with Barclays at their office in Stockholm. The briefing was given by Mr. Christian Keller, Managing Director and Head of Economics Research at Barclays.
Mr. Keller’s run-down of the financial situation could be summarised by a positive start to 2023 and a risk of over-optimistic markets. Today we can see that markets took the rapid changes in the interest rate very well and has shown particularly optimistic signs since the Central Banks (CBs) pivoted from .75 to .5 increases of the interest rate. This has led a big part of the market to optimistically project the decrease of the inflation rate. By the end of the year, markets expect an inflation rate of around 3% year on year. Long term expectations even go as far as around 2.2%. PMI is going up, indicating a growing positive perception amongst the stakeholders in the market. However, Mr. Keller points to the fact that this could be overoptimistic due to a number of reasons:
- The reopening of China
- Potentially persistent core-inflation
- Geopolitics and regionalisation
- Large fiscal deficits
The reopening of China can on one side mean a boost to the world economy’s recovery, but it also means an increased demand for global energy and commodities since their industry is ramping up and consumption rather than exports will drive the recovery. So, although energy costs are lower than expected, they might still raise together with the price of commodities and postpone a recession rather than avoiding it.
Connected to this is the geopolitical aspect, which likely could add to the inflationary pressures by increased regionalisation. In addition to moving away from outsourcing to China and diversifying supply chains, which induce costs, we also see an emphasis on moving production closer to friends and home, further pointing towards the fact that inflation might be more stubborn than markets predict.
In the light of this, if core inflation remains and a recession is postponed, CBs might want to keep raising interest rates and stay at a higher level for a longer period. Here, Mr. Keller also gives a little warning that CBs might not be as traditionally dead set towards the 2% inflation goal as markets expect. With the large fiscal deficits, CBs have the option of inflating it away, meaning that they might not want to go as forcefully towards the 2% mark, given that unemployment remains low.
The BSCC would like to extend many thanks to all of you who attended this breakfast event. We would also like to extend a special thank you to our Patron member Barclays for hosting us at their quarters in Stockholm. We hope to see you soon at our upcoming events.