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Economist Insights

Economist Insights
Economist Insights | UBS Switzerland

February 2015

  1. Deflattering

    Blog post | Tags: Joshua McCallum

    Japan's real GDP slumped in 2014. But nominal GDP actually grew by almost 2%. The difference between real and nominal GDP growth is the GDP deflator. An increase in nominal GDP means that the Bank of Japan's monetary easing appears to be working. For inflation to be sustained, it will be necessary for wages to rise, and for some structural reforms to take place.

  2. Empty nest

    Blog post | Tags: Joshua McCallum

    US household formation has been far lower than population growth would suggest since the financial crisis, due to a combination of high unemployment, low wages and limited access to credit. This is creating pent up demand in the US housing market which may help to explain some of the puzzles of that market.

  3. GDP: Growth dependent payments

    Blog post | Tags: Joshua McCallum

    Greece proposed last week that it would drop its call for an outright debt haircut, if the Eurozone agreed to swap some of the Greek bonds it holds for GDP-linked bonds. GDP-linked bonds would not be such a big leap for the Eurozone, given that last time Greece ran into growth problems, the Eurozone lent more money, lowered the interest rate and extended the maturity (an implicit GDP link). However, GDP-linked bonds may not necessarily guarantee long-term sustainability of the Greek debt.

  4. Space saving

    Blog post | Tags: Joshua McCallum

    Low interest rates mean that governments' borrowing costs have fallen, so they are making implied savings simply from not having to pay as much in interest payments. The low rates may be due to the dominance of price-insensitive buyers of government bonds. With the ECB embarking on its QE programme, if there are limited sellers of government bonds then bond yields could fall by more than is currently priced in. 

January 2015

  1. The Rubicon and the Styx

    Blog post | Tags: Joshua McCallum

    Last week, the ECB crossed a Rubicon by announcing a quantitative easing programme. With the results of yesterday's Greek election, Greece is also standing on the edge of a point of no return. The main uncertainty is how the new Syriza coalition government will deal with the negotiation of the current bail-out programme due to expire at the end of February.

  2. ECBingo

    Blog post | Tags: Joshua McCallum

    The ECB is widely expected to announce some sort of QE programme on Thursday, but the details are by no means certain. The main questions will be the size, speed and start date of the programme, as well as the tricky question of what assets the ECB will buy – we provide a scorecard of potential options and how much of a surprise or disappointment each could be. Last week the SNB decided to end its EURCHF exchange rate floor. This was probably due to fears that it would be too expensive to defend the floor following ECB QE.

  3. Functional forecasts

    Blog post | Tags: Joshua McCallum

    In every year since 2011, the consensus forecast for US interest rates has been drastically wrong. The main culprits for this are likely to be either disappointments in the data (growth, inflation), longer-term expectations or technical factors. There is little evidence that the drop in the oil price reflects weaker global demand.

  4. Delphic

    Blog post | Tags: Joshua McCallum

    Economic forecasts are based on the trend of current data and on judgement. Consensus expectations for 2015 GDP growth for both the US and Japan seem to be much more based on judgement, while forecasts for the Eurozone are more weighted to the current trend. What has been driving those differences in economists' forecasts? 

December 2014

  1. Market resolutions for 2015

    Blog post | Tags: Joshua McCallum

    Based on the experience of the last year, we once again propose some New Year's resolutions for the market:

    - I must realise that economies don't always move together

    - I will remember that the narrative can change

    - I will recognise that lower oil prices are a good thing in aggregate

    - I will not be afraid of USD appreciation

    - I will see European banks as safe but will not rely on them for growth

    - I will not underestimate the ECB (again)

    - I will not count my arrows before they hit the target

    - I will treat emerging markets as emerging (again)

    - I will acknowledge that I do not understand how (or why) the UK economy works

    - I will acknowledge that I do not understand how (or why) the labour market doesn't work

  2. Christmas (t)rouble

    Blog post | Tags: Joshua McCallum

    Russia has taken centre stage with a falling currency and the CBR hiking rates to 17%. If the rate hikes are only temporary to calm the currency markets, then the most negative scenario could be avoided. In other markets, our Christmas price index suggests that this year Christmas has become more expensive in Japan and Spain, but cheaper in Greece and the UK.

About the authors

Economist Insights is written by Joshua McCallum and Gianluca Moretti. Joshua has been working at Global Asset Management with the title of Senior Fixed Income Economist since 2005. Prior to this, he worked at the UK Treasury as a macroeconomist. Gianluca joined Global Asset Management in 2010. Prior to this he worked at the Italian central bank.