28th November 2014
Governments should focus on fiscal growth rather than tinkering with monetary policy in order to boost economies, argues Miton fund manager David Jane.
Jane, who manages Miton’s multi-asset funds, said governments around with weaker economies are ‘queuing up to introduce growth/inflation-boosting measures’. This includes an unexpected rate cut in China at the end of last week as the country tries to ensure a soft landing, president of the European Central Bank Mario Draghi talking the markets toward quantitative easing, and the surprise extension of the Bank of Japan’s stimulus package.
‘We were as surprised as the market by the timing of the Chinese and Japanese moves but we are not surprised that central banks are continuing to act, as we expect global growth to remain subdued, keeping the authorities under the spotlight,’ said Jane.
However, Jane said that while the moves had a positive impact on financial markets ‘the impact on the real economy remains unclear’.
‘In fact, the combination of loose monetary policy and tight fiscal policy has not managed to address the central issues driving slower growth, such as deficient aggregate demand and weak investment spending,’ he said.
‘Against this backdrop, there seems to be a growing consensus for loose monetary policy and looser fiscal policy, or at least easy money and a boost to infrastructure spend. The G20 recently committed to stimulate investment in infrastructure and, closer to home, the CBI this week added their voice to calls for more spending on infrastructure.’
Jane said he believed these proposals ‘missed the wider point’.
‘We have argued before that the perception for long-term trend growth needs to be reigned back. Factors like still high debt levels and demographic dynamics, which are seeing falling working age populations in many economies, are constraining growth,’ he said.
‘In short, it is unrealistic to compare future growth to pre-crisis levels. That said, most politicians seem a long way from accepting lower long-term growth rates and so will continue to press for action. They also seem a long way from concluding that fiscal policy, in whatever form, is more likely to drive economic growth than monetary policy.’
He added that he expected to see ‘a low growth world’ and he maintained a portfolio bias towards defensive equity stocks ‘complemented by niche growth stocks’ and long-dated government bonds and property.