The global economy is about to enter a period of growth and this, together with uncertainty over Brexit, is good news for Guernsey, a visiting economist has told an audience at the Old Government House Hotel.
Christian Gattiker-Ericsson, head of research & investment solutions at Bank Julius Baer in Zurich, was in the island to present a bi-annual market outlook and provided an in-depth look at global economic performance as well as looking ahead to what kind of Brexit deal the UK can hope to achieve.
The global economy is currently in a period of steady growth, which should continue for the short term, Mr Gattiker-Ericsson revealed. This is the result of the strong performance of the economy of the United States, which has confounded the predictions of many experts.
The US 10-year yield – the return an investor will receive by holding a US bond for its full 10 years, until its maturity – is currently in a period of recovery having been on a downward curve since the 1980s.
“Investors are often damned to repeat the fate of years gone by as we’ve simply forgotten how previous situations panned out,” Mr Gattiker-Ericsson explained. “We are currently in a rerun of the 1950s, when slow reflation of the US 10-year bond led to a prosperous economy, but many current investors and fund managers simply weren’t around at that time so haven’t recognised it.
“There are many who argue that the US economy will soon stumble but our data indicates they are misguided. For example it’s often argued that the US has a demography problem as the baby boomer generation leaves the workforce and retires. However our research shows that the impact of this will be minimal thanks to the ‘echo boom’ – which is the baby boomers’ grandchildren joining the workforce.”
Craig Allen, Head of Investment Management for Julius Baer Guernsey, painted a similarly positive picture and believes that all asset classes have performed well despite difficult conditions over the past 20 years and an especially trying climate in the last six months because of a variety of factors including the weak pound, a strong US dollar, Brexit uncertainty and an emerging markets crisis.
Despite this, Mr Allen is optimistic: “Clients often ask us when the best time to invest is and the honest answer is right now,” he said. “It’s not been a great six months to invest but the fact is that clients who invest as early as possible and keep those investments for as long as possible are the ones who do best.”
Brexit could present opportunities
Brexit is one of the largest uncertainties on the horizon for the economies of Guernsey, the UK and the world and the European Union (EU) summit in November will be a crucial point for negotiations.
This summit should provide a much clearer picture of what kind of deal the UK will end up with ahead of leaving the EU on 29 March 2019 and, with a hard Brexit looking increasingly likely, Mr Gattiker-Ericsson outlined some potential consequences.
“Negotiations as complex as the Brexit ones were always going to go to the wire but that does nothing for economic security,” he said. “A hard Brexit will almost certainly result in higher inflation, lower growth and a weak pound, but isn’t necessarily a bad option for the UK or Guernsey.”
Mr Allen is optimistic about Guernsey’s future: “Guernsey could well come out of Brexit looking much healthier than the UK. It is still a well-regarded jurisdiction with a proven track record and Brexit could result in job creation in Guernsey as people look to deal with a stable, experienced jurisdiction.”
Mr Gattiker-Ericsson and Mr Allen were speaking to an audience of just under 100 invited guests at Julius Baer’s Autumn Outlook event.