Speaking at the SteelOrbis 2016 Fall Conference & 75th IREPAS Meeting held in Vienna on September 25-27, Lutz Karpowitz from Commerzbank AG focused the spotlight on a current global phenomenon, namely, very low inflation rates. He said that the major economies are struggling with inflation rates below the central bank targets, while adding that the inflation rate is even negative in the euro zone.
According to Mr. Karpowitz, the central banks tried to solve this problem with quantitative easing which did not work, because the liquidity was created but it failed to reach the real economy and remained stuck in the banking system. He recalled that the European Central Bank is the only central bank which has both negative inflation rates and quantitative easing and this situation only raises costs for the banking system. Regarding the US, the Commerzbank official said that the Federal Reserve (US Fed) has continued to signal a hike in interest rates but this never turns into reality, while he warned that “the market simply does not believe what the Fed says anymore, it loses credibility. With low credibility, it will be very difficult to create desired inflation targets.”
Mr. Karpowitz also listed the problems China is experiencing; high capital outflows, high overcapacities, a highly indebted corporate sector and demographics. He said that China has a capital account surplus since it exports more than it imports; however, there is a lot of capital outflow in China and, to compensate for the difference between the surplus and the capital outflows, China spends its foreign exchange reserves. Looking at the overcapacity problem, Mr. Karpowitz said that capacities have been growing faster than production. “The problem in China is that a lot of corporate companies are state-owned. So the idea of overcapacity leading to less investments does not work in China due to government incentives, and banks are asked to provide more credit,” said the Commerzbank representative.
In conclusion, sharing his outlook, Mr. Karpowitz said that, for China, growth will not pick up in the next 5-10 years. He stated that, with the current monetary policies and the very low interest rates, the global economy is unlikely to gain significant speed in the next couple of years.