Tough GFC decisions postponed

Too many Governments have simply postponed making the ongoing hard decisions evolving out of the global financial crisis (GFC), according to a new analysis released this week by Standard Life Investments.

The analysis argues that while policymakers initially reacted well to the problems thrown up by the GFC, preventing an even deeper recession, many of the most important and difficult decisions have simply been postponed.

Standard Life argues that, on this basis, investors must be prepared for slower economic growth and volatile financial markets to come.

Standard Life Investments head of global strategy Andrew Milligan said that good news was that some progress had been made by the corporate and financial sectors, but the bad news was that many of the difficult decisions facing the government and household sectors had simply been postponed.

“This has important implications for investors,” he said. “Economic growth will be slow in the major OECD economies for some years, with financial markets showing a saw-toothed pattern as they are affected alternately by stimulus measures and structural headwinds.”

Milligan said that while there had been a degree of rebalancing of the global economy since the GFC, considerable problems remained.

“We expect historically low rates of OECD economic growth and volatile financial markets reacting to policy decisions both in OECD and global emerging markets,” he said. “High levels of debt in some countries, high levels of savings in others, combined with unduly low interest and exchange rates are all resulting in sizeable sovereign stress.”

“At best the world economy might be halfway through the adjustment process, at worst the seeds are being sown for the next investment bubble and bust,” Milligan said.