If you have been in the USA recently and watched American television, you have probably been bombarded with adverts or ’messages’ as the broadcasters call them, from leading drug companies. These adverts have to carry a mandatory verbal warning of the main side effects from the drug being promoted, a warning that often lasts longer than the main promotion message itself.

At the end of it all you wonder why on earth anyone would bother taking the medicine! Investors seem to have been asking the same question over the last few weeks about the wonder drug prescribed to stimulate flagging economies, quantitative easing or QE. In its recent global fi nancial stability report, the IMF cautioned that policy reforms were needed urgently to restore long-term health to the financial system before the long term dangers of monetary stimulus materialised. The report warned that when the time came to end the extraordinarily loose monetary policy, the effects could expose vulnerabilities among companies and households facing higher long-term interest rates, destabilise credit markets and reverse capital inflows to emerging economies.

Perhaps it is just another of those ‘Spring Slowdowns’

Perhaps the IMF is simply jumping on the bandwagon as investors question whether QE is actually working following a raft of data suggesting that the global economic recovery is faltering. In the US, retail sales in March fell the most in nine months and a survey of consumer sentiment showed an unexpectedly steep decline; even the robust housing market has seen existing home sales fall in March despite forecasters confidently calling for another rise. Employers in the US hired fewer workers in March than forecast suggesting that the jobs market once again is struggling to get momentum. China has also disappointed financial markets: economic growth in the first-quarter of the year was 7.7 per cent, but that was down from the 7.9 per cent advance in the last quarter of 2012 and short of an anticipated 8.0 per cent figure from some of the larger financial houses and Chinese manufacturing is clearly showing signs of slowing down on the back of lower domestic and global consumption. Corporate profits have held up well but some global industrialists are warning of sluggish activity in the next quarter. To round off the poor news, the IMF has warned that it may lower its forecast for American growth and that Germany may slip into recession later this year.

That said, investors have not exactly rushed for the exits: amid all the uncertainties over growth the American S&P 500 index has only slipped off by three per cent and our own FTSE 100 index is down just a few per cent from the peaks seen a few weeks ago. Perhaps it is just another of those ‘Spring

Slowdowns’: in each of the last four years since this bull market started, the FTSE 100 index has shed a few hundred points in the spring months as economic data has faltered; but clawed back lost ground and marched upwards again later in the year. We could see the same again this year. There is no doubt that central banks will be administering more QE to the patient in the coming months. It has to work! The patient has to revive, stand on its own two feet, and without the after effects the IMF is so worried about.

 Sabine Le Brizoual MCSI

Redmayne Bentley Stockbrokers LLP



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