Why the macro-economic environment matters
Perhaps the key development for the global economy in recent months has been a crucial step taken by the European Central Bank (ECB), which has now pledged unlimited resources towards supporting the sovereign bond markets of troubled Eurozone nations. Since this announcement, bank shares have soared, given that the probability of a Euro break-up has now diminished.
The outlook for the global economy will, as ever, also remain very dependent on developments in the US and China. With regard to the US, there have been some very positive signs that the labour and housing markets are gaining momentum, despite fears of the potential ‘Fiscal Cliff’ next year, which we still hope will be avoided. Meanwhile in China, it is hoped that after a recent slowdown, the economy is now well positioned to accelerate in 2013 under the new leadership regime.
However, despite some clearly positive developments in recent months, UK banks still face a number of challenges in the near-term.
Although the macroeconomic environment looks set to improve, growth levels are still likely to be some way below what would be expected at this stage of the global economic recovery. The risk that conditions in the Eurozone begin to deteriorate again also remains, despite the ECB recently removing some of the worst-case scenario ‘tail risks’.