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Chatfeild-Roberts: Europe at risk of Japan-style deflation

Jupiter multi-manager John Chatfeild-Roberts has warned Europe is “definitely at risk” of falling into a similar deflationary cycle as seen in Japan during the 1990s.

Chatfeild-Roberts, who heads the Jupiter Merlin range of five portfolios, notes the progress being made in European economies.

He points to improvements in the eurozone’s manufacturing sector over the course of last year and into this year, which has also been “underpinned by solid and accelerated growth across much of the region”.

He believes valuations of European equities also remain attractive compared with other areas of the market.

But he says Europe’s ongoing problem with falling inflation is becoming the “biggest risk” in the region, particularly if the European Central Bank does not respond with the necessary policy measures.

Chatfeild-Roberts says: “The biggest risk in Europe is the European Central Bank fails to react in time to the increasing risk that deflation becomes embedded in the financial system.

“Inflation currently stands at 0.6 per cent, which is well below the official target of 2 per cent.

“Should money supply slow and the authorities fail to react, then Europe is definitely at risk of falling into the same deflationary trap as Japan did in the 1990s.”

European Central Bank president Mario Draghi has argued Europe is not at risk of drifting into a Japan-style deflationary cycle, in an attempt to reassure markets that “all the possible instruments” will be used to tackle falling prices.

Investment Quorum chief executive Lee Robertson says: “We invest in companies and not economies, so we have stuck with Europe over the last few years despite the noise around its economy and this has worked for us.”

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