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Market Viewpoints

"Despite a voluminous and often fervent literature on “income distribution,” the cold fact is that most income is not distributed: It is earned."

Lower for longer is the new regime for oil, barring a geo­political conflict that disrupts supply. Saudi policymakers perhaps remember the bitter lessons from the early 1980s, when Saudi Arabia cut its production to prop up prices in the face of rising supplies from non­OPEC producers. Saudi policymakers today are determined not to make the same mistake again. Whatever one may think of the whole Brexit issue, it is clearly a possibility and that begets uncertainty. There is no precedent of a nation leaving the European Union (EU). We therefore have no template for how EU­UK economic relations might be post Brexit. The EU started as an economic area, breaking down trade barriers. Few leaders in the EU or the UK would want to go back to the time of trade barriers. It will be mutually destructive and therefore unlikely. The current US economic expansion is almost seven years old. This may seem long and we are therefore hearing murmurs of a looming recession. However, this expansion is the worst ever in terms of per annum (p.a.) GDP growth. During 1910­30, when the US experienced one of its worst depressions, Real GDP grew at a +2.6% p.a. pace. During 2009­15, US real GDP has grown at a paltry+ 2.1% p.a., largely due to the absence of any meaningful fiscal response. In the past, fiscal stimulus has been an important component of a recovery post a recession. This time around, austerity has been the buzzword.

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