From Gavyn Davies at the FT:
Investors are asking whether this pivot towards fiscal activism is a reason to become more bullish about equities and more bearish about bonds, on the grounds that the new policy mix will be better for global GDP growth. This is directionally right, but it is important not to exaggerate the extent of the pivot.
- In Japan, there has been an overt decision to ease budgetary policy by about 1.3 per cent of GDP in the next 12 months.
- In China, fiscal policy has probably been eased by at least 1 per cent of GDP this year, though much of this has been outside the official government budget.
- In the UK, Chancellor Hammond has suggested that he is rethinking his predecessor’s plan to balance the budget by 2020, though this change may not be taken as far as a major easing in the policy stance.
- In the US, both Hillary Clinton and Donald Trump have outlined spending packages, amounting to 1.5 and 2.5 per cent of GDP respectively, but it is far from clear how much of his would be offset by extra taxation after negotiations with Congress.
- In the Eurozone, budget deficit targets have been allowed to rise to finance help for migrants and the Juncker infrastructure programme, and even Germany is seriously thinking of tax reductions in 2017, but the overall change in the fiscal thrust still seems rather minor.
