The past week has, yet again, emphasised the fragile nature of European politics and the Continent’s growth narrative. While the jolt higher in Italian yields was dramatic, this is really only a sideshow to the real issue: the continued absence of governments capable of reform, and the difficulties this situation creates for confidence; productivity and income growth.
As we have highlighted on a number of occasions, the driving force behind this growth cycle has been pent-up demand, released by income growth and credit availability. The former holds promise as a lasting positive; but the latter is a temporary add-on to growth, set to recede. In assessing how sustainable current growth is, the importance of both income and credit to overall momentum needs to be assessed.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
