Source: Zhitong Finance and Economics
Author: Ma Huomin
Jerome Haegeli, chief economist of Swiss Reinsurance Company, has been thinking about what happened on August 15, 1971.
On that day, US President Richard Nixon announced the end of the exchange rate peg to gold, ushering in more than half a century of globalization, flexible exchange rates, open markets and falling inflation.
Haegeli says the date stands out because it is the beginning of an era that is now coming to an end. Haegeli is also reported to have worked at the SNB, including as a representative of the SNB on the Executive Board of the International Monetary Fund (IMF).
Haegeli said that due to the impact of food, energy and supply chain, "we are in a crisis" in "slow motion". "the transformation of the macro-system requires a moment of crisis."
He said the new system being formed must uphold the spirit of the "Bretton Woods system" and emphasize co-operation among global policymakers. Zhitong Financial APP learned that the Bretton Woods conference in 1944 established a postwar international monetary system centered on the dollar, with the United States promising a fixed exchange rate of $35 an ounce of gold-a system that was eventually halted by Nixon. Haegeli said that any new order must better take into account the needs and capabilities of emerging markets and more developed economies.
Haegeli said that during the crisis in Russia and Ukraine, central bankers were forced to readjust inflation expectations, and their starting point was to fulfill the mission of price stability.
Policymakers need to refocus on promoting long-term investment while promoting a recovery in the "real economy", with tangible assets such as infrastructure being welcomed again after 15 years of financial asset price inflation. In this regard, Haegeli expressed appreciation for Singapore's announcement of a green bond issue this month. He believes that as governments seek more private funding for infrastructure projects, other economies are following suit.
While Haegeli believes central bankers will welcome a new era of the global economy and be better able to fulfil their mission, his near-term forecasts are much more pessimistic.
Swiss Reinsurance 's expectations for price increases are higher than market expectations, while growth expectations are lower than market expectations. Haegeli and his team believe that high inflation will last longer and that inflation in the US will stabilize at around 3 per cent over the next decade.
He said that while there would not be 1970s-style stagflation, there could be an "inflationary recession", or inflationary recession, in which prices rise in the face of shrinking economic growth. The recession in the US should be "quite mild", but the recession in Europe is much more severe, with natural gas prices hovering around 10 times normal levels.
Edit / tolk