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Risks remain on the downside – SocGen

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 26, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Michala Marcussen, Global Head of Economics at Societe Generale, suggests that on balance, risks remain tilted to the downside.

    Key Quotes

    “Top of the list is the risk of Brexit that we see as a 45% probability and at a potential cost of 0.5pp-1.0pp on UK growth over the coming ten years. For the rest of the EU, the news is also bad with an expected loss of 25% of what the UK is losing.

    A China hard landing also remains a significant risk at 30%. The risk of renewed disappointment on US growth numbers, should the consumer opt to save more, is a less spectacular risk, but one with important consequences for the global economy. Indeed, we place the probability of a global recession at 20%.

    Common to all these risks is the financial conditions component that has the potential to act as an amplifier, both in terms of the individual risks and in linking them together, making each more likely. Given the tug of war at the Fed between global financial conditions and a domestic labour market close to full capacity, the risk of too little too late from the Fed also merits some attention.

    Set against this gloom, on the upside, stronger trade and investment as the result perhaps of a more concerted effort from policymakers offers an upside risk. Watch the G20 meeting in Shanghai for action in this context. This ties in also with the possibility of more fiscal accommodation and fast-track reform effort.

    On balance, however, risks remain clearly titled to the downside.”
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