By Andrei Skvarsky.
Swiss private bank Lombard Odier has released a generally optimistic 2019 forecast for the euro zone, predicting 2 per cent economic growth for it and arguing that its economy is in a position to offset potential political and trade headwinds.
The forecast, part of the Geneva-based 222-year-old bank’s 2019 base scenario for the euro area, beats the consensus growth projection of 1.6 per cent.
Lombard Odier also expects the European Central Bank to exit current negative interest rates for the euro zone, according to the scenario.
The zone has macroeconomics robust enough to outweigh external risks, Lombard Odier investment strategist Bill Papadakis argued in a paper that set out a global economic forecast for 2019.
These macro conditions, according to him, include current account surpluses, controlled budget deficits, a shrinking unemployment rate with the potential to drive inflation upwards as a sign of growing production, rising wages, and better lending conditions.
As regards risks, one of them are current trade tensions between Western countries, on the one hand, and China, on the other. While manageable today, they will prove a real challenge to Lombard Odier’s base scenario if they “escalate to a full-blown trade war”, Papadakis said.
There is, besides, a looming threat of the United States slapping tariffs on imported European cars and auto parts, according to the paper.
There are political hazards as well.
One of them is that, after lengthy talks with the European Commission, Italy would still go ahead with a budget deficit that Brussels strongly objects to, “reviving the risk of an existential euro zone crisis”, Papadakis said.
Another is the possibility of a no-deal Brexit, which would “have severe implications” both for Britain and for the EU, he said.
Lombard Odier’s global forecast is also genrally positive, although the lender expects global economic growth to slow somewhat.
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