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Schroders economists warn on market complacency

Keith Wade 190
Schroders’ Keith Wade

Conditions in the global economy seem to have turned a corner in the new year, according to Schroders economists, raising hopes that we have entered a post-crisis world.

But in their latest Economic and Strategy Viewpoint, Schroders chief economist and strategist Keith Wade, European economist Azad Zangana and economist James Bilson warn any complacency in financial markets could reduce the likelihood of a “favourable outcome” for major economies.

The opening weeks of 2013 seen a number of positive moves such as a partial resolution of the US fiscal cliff, the Basel Committee’s easing in the liquidity rules for banks and and the commitment to a more aggressive inflation target in Japan, the economists note.

“Pulling this together, there is an increasing belief that we have moved into a post-crisis era and that despite the brinkmanship, policymakers will ultimately act to prevent systemic events from materialising,” they write.

Wade, Zangana and Bilson concede that there have been “false dawns” before when calling the end of the crisis but they argue important differences can be seen this time – particularly the use of more supportive policy such as the US Federal Reserve’s commitment to bringing down unemployment.

“Ultimately the economic imperative of keeping growth and the economy going has brought politicians to the right decision,” they say.

“However markets, particularly equities, have played a role in this. Should we now enter a period of financial market complacency, the incentive for politicians to act and the prospect of a favourable outcome will be reduced.”

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