The threat of a European policy blunder returning to surprise markets next year should be taken as seriously as risks emerging from the anticipated "fiscal cliff" in the United States, Bank of America Merrill Lynch has warned.
Business leaders have spent much of this year calling on the US congress to avert the fiscal cliff by reaching the compromise on deficit reduction that eluded policymakers during talks over the nation's debt ceiling last year.
The fiscal cliff is a mix of automatic tax rises and spending cuts that are due to take effect next month, likely plunging the world's largest economy into recession.
But Europe could see similar risks emanating from policymakers' inaction, said Johannes Jooste, the head of strategy for Europe, the Middle East and Africa at Bank of America Merrill Lynch.
A "euro-cliff" could unexpectedly materialise next year if markets once again lose faith in the 17-nation currency bloc and governments in the euro zone are too slow to act.
"The risk is of something happens by accident because they procrastinate," he said, adding that a spike in government bond yields if not swiftly contained could be one such trigger for this kind of crisis.
"We don't think they'll actively try to engineer one," he said. "The cost of doing so outweighs the benefits by a long margin … From a political point of view the objective across the board appears to be to keep the union together."
Starting last December, the European Central Bank undertook a series of unprecedented policy measures to minimise the risk of a market-led run on euro-zone banks and sovereign debts.
The IMF said in October that the cumulative effect of all of the measures was expected to reduce US GDP by 4 per cent during next year, causing growth to "stall" and inflicting "large spillovers on major US trading partners".
Mr Jooste said the risks of a Thelma & Louise moment were unlikely, referring to the Hollywood finale that involves the 1991 movie's heroines bravely speeding off a cliff edge. US politicians were more likely to come up with some kind of fudge to avert such a large loss of output, he said.
In an echo of last year's debt reduction talks, congressional Republicans submitted a US$2.2 trillion (Dh8.08tn) deficit reduction plan yesterday. It was quickly shot down by the White House as light on detail.
Investor panics around the euro zone have receded during the past year even as the trading bloc's economy ground to a halt, with the Stoxx 600 index of European equities advancing 13 per cent year-to-date.
Spain received approval for funding of up to €39.5 billion (Dh189.83bn) for the recapitalisation of its bank bailout fund from other European countries this week, ending investor uncertainty over when a rescue would come.
Meanwhile, Greece announced a buyback of €10bn in debts this week as efforts continue to bring the stricken country's debt-to-GDP ratio down to more manageable levels.
"We've been consistently saying the Europeans aren't silly enough to blow the thing up on purpose," said Mr Jooste.
The next step would be for euro zone countries to press ahead with measures to unify banking supervision, with coordination of budgets likely to occupy European policymakers after that, he added.
The global economy would be likely to stabilise at 3.2 per cent this year, with the UAE economy in line with the global average, he said.
The major hit to UAE growth would be the extent to which deleveraging by global banks had an impact on world trade.
ghunter@thenational.ae
The National Archives, Abu Dhabi
Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.
Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en
How will Gen Alpha invest?
Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa, forecasts that Generation Alpha (born between 2010 and 2024) will start investing in their teenage years and therefore benefit from compound interest.
“Technology and education should be the main drivers to make this happen, whether it’s investing in a few clicks or their schools/parents stepping up their personal finance education skills,” he adds.
Mr Chahwan says younger generations have a higher capacity to take on risk, but for some their appetite can be more cautious because they are investing for the first time. “Schools still do not teach personal finance and stock market investing, so a lot of the learning journey can feel daunting and intimidating,” he says.
He advises millennials to not always start with an aggressive portfolio even if they can afford to take risks. “We always advise to work your way up to your risk capacity, that way you experience volatility and get used to it. Given the higher risk capacity for the younger generations, stocks are a favourite,” says Mr Chahwan.
Highlighting the role technology has played in encouraging millennials and Gen Z to invest, he says: “They were often excluded, but with lower account minimums ... a customer with $1,000 [Dh3,672] in their account has their money working for them just as hard as the portfolio of a high get-worth individual.”
UAE currency: the story behind the money in your pockets
RESULT
Manchester City 5 Swansea City 0
Man City: D Silva (12'), Sterling (16'), De Bruyne (54' ), B Silva (64' minutes), Jesus (88')
Easter%20Sunday
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UK’s AI plan
- AI ambassadors such as MIT economist Simon Johnson, Monzo cofounder Tom Blomfield and Google DeepMind’s Raia Hadsell
- £10bn AI growth zone in South Wales to create 5,000 jobs
- £100m of government support for startups building AI hardware products
- £250m to train new AI models
How to register as a donor
1) Organ donors can register on the Hayat app, run by the Ministry of Health and Prevention
2) There are about 11,000 patients in the country in need of organ transplants
3) People must be over 21. Emiratis and residents can register.
4) The campaign uses the hashtag #donate_hope
Mohammed bin Zayed Majlis
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Neil Thomson – THE BIO
Family: I am happily married to my wife Liz and we have two children together.
Favourite music: Rock music. I started at a young age due to my father’s influence. He played in an Indian rock band The Flintstones who were once asked by Apple Records to fly over to England to perform there.
Favourite book: I constantly find myself reading The Bible.
Favourite film: The Greatest Showman.
Favourite holiday destination: I love visiting Melbourne as I have family there and it’s a wonderful place. New York at Christmas is also magical.
Favourite food: I went to boarding school so I like any cuisine really.
In numbers
1,000 tonnes of waste collected daily:
- 800 tonnes converted into alternative fuel
- 150 tonnes to landfill
- 50 tonnes sold as scrap metal
800 tonnes of RDF replaces 500 tonnes of coal
Two conveyor lines treat more than 350,000 tonnes of waste per year
25 staff on site
