A severe slowdown in China is viewed as among the greatest risks facing the world economy this year, and Thursday’s dismal news on Chinese manufacturing output exacerbated these fears. But the really important news from Beijing pointed in the opposite direction: Bank lending in China, instead of slowing dramatically as many economists had expected, accelerated in January to its fastest growth in four years.
“I have seen the future and it works,” said Lincoln Steffens, a left-wing American journalist, on returning from the Soviet Union in 1919. After a weekend in Venice at a seminar organized by the Italian ambassador to Britain, I found myself struck by the same thought, which is not exactly the reflection that the world’s most perfectly preserved medieval city is supposed to inspire. Venice is a clichéd metaphor for “Old Europe” — a sclerotic old continent fixated on its past and now retiring to become a museum society, destined gradually to sink beneath the sea. But should we perhaps be inspired, not depressed, by the thought of Venice, the ultimate “museum city,” as a microcosm of Italy and even of Europe as a whole? After all, Venice is still standing, not sinking into the sea, and after 500 years of supposed decline it is still stunningly beautiful. Maybe Italy and Europe, instead of sinking, will also prove their resilience and make a comeback?
Is it conceivable that Britain will leave the European Union? A few years ago this question would hardly have been worth asking. In the past 12 months, however, the issue of EU withdrawal has shot into the British political headlines.
Happy New Year! For the first time since 2008, we investors, economists and businesspeople say these words without irony. While last year was statistically disappointing, with global growth slowing slightly from 2012 and apparently belying the optimism expressed here last January, the verdict of financial markets and business sentiment has been much more consistent with my predictions. Despite the apparent slowdown, stock markets enjoyed their best performance since the 1990s, long-term interest rates soared and consumer confidence all over the world ended 2013 much higher than it started. This apparent paradox is easily explained: the statistical weakness of 2013 was due entirely to a very weak period last winter, connected with the U.S. presidential election and leadership transition in China. By the second quarter, growth had revived in the U.S. and China and accelerated strongly in Britain and Japan.
Thanks goodness it’s over. Financial market behavior ahead of last night’s announcement by Ben Bernanke on a gradual reduction in U.S. monetary stimulus has been tedious and irritating, rather like listening to whining children in the back of the car on a long journey: “Daddy, are we there yet?” In fact, impatient whining about when the Fed might start to “taper” has spoiled for many investors what should have been one of the most enjoyable financial journeys of all time, scaling previously unexplored market peaks and passing through unprecedented monetary vistas.
The muted market reaction to this week’s budget deal in Washington may initially seem like a disappointment. After all, uncertainty over government spending, debt and taxes has consistently emerged in business sentiment surveys as the biggest single factor holding back corporate investment and damaging financial confidence. Why then did Wall Street celebrate this breakthrough with its biggest daily fall in two months?
Students of British history will recall the story of Thomas a’Becket, the 12th century prelate who was handpicked by Henry II to become Archbishop of Canterbury because of his loyalty to the Crown. Within months of his appointment, a’Becket turned against the King in the numerous conflicts between church and state. As a result, a’Becket was murdered at the altar of Canterbury Cathedral in 1170, after four of Henry’s henchmen heard their royal master mutter in irritation: “Will no one rid me of this turbulent priest?” Archbishops do not have much political clout these days, but comparable spiritual importance now attaches to central bankers. And a central banker who suddenly seems reminiscent of Thomas a’Becket is Mark Carney, the recently appointed governor of the Bank of England.