REUTERS-Brexit
should not be viewed in terms of 'hard' or 'soft' but rather as a complicated
process of redistributing sovereignty, Standard & Poor's chief economist
said on Wednesday.
Speaking in
the Global Markets Forum live from the World Economic Forum in Davos, he also
said a recent rise in bond yields should be viewed, in principle, as a positive
development.
Here are
some excerpts from the conversation.
QUESTION:
What are your thoughts on the UK's economic outlook after Prime Minister May's
comments yesterday indicating it would leave the single market?
ANSWER:
We've already shaved several basis points off our (UK) growth forecasts for the
next two years. For the time being it is an uncertainty shock more than
anything else. I wouldn't look at Brexit too much in terms of zero-one,
hard-soft etc but more as a complicated process of a recontracting of
sovereignty sharing among members. But it is a negotiation so it makes sense for
the prime minister to give some clarity and lay out some key principles but
also keep some cards close to the chest.
Q: What are
your oil forecasts at the moment? Have they or are they likely to be raised now
we look to have steadied around $55 a barrel?
A: Our oil
experts expect prices to trend upwards over the medium term, on reasonably
strong global demand, but to remain capped by the latent supply from shale. I
am skeptical about the ability of OPEC to exercise much market power now that
shale oil is the swing supply.
Q: Which
countries will feel the pressure most from the recent rise in yields?
A: The rise
in yields is in principle a welcome development. We just spent X number of
years fretting about secular stagnation and low/zero/negative rates. We found
that the likes of Turkey, Venezuela and Argentina were among the most notable
emerging markets that are vulnerable to a "Fed shock". LatAm comes
out as vulnerable on rates as well as a China hard-landing. Among economies
least hit by rising rates are the likes of China, Russia and Brazil, ie the
largest domestic demand- oriented economies.
Q: If there
is all-out trade war as the kind of worst case scenario, how much would the
likes of Mexico's economy be hit? Canada might be the other big loser too, I
guess?
A: In
general the economies that would be most hit by a real and sustained trade war
would be the smaller EM and export-oriented developed economies. China and the
U.S. both have large domestic markets so could sustain growth a bit better.
Mexico and other smaller economies in LatAm and in emerging Asia would be big
losers. China has a large domestic market but it is at the wrong stage of
economic development to want to cut itself off from the global economy.
To read
Sheard's comments on South Africa and Mexico see [L5N1F83W0]
(This
interview was conducted in the Reuters Global Markets Forum, a chat room hosted
on the Eikon platform. For more information on the forum or to join the
conversation, follow this link: here)
REUTERS
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