The unraveling of the Cyprus debt crisis and political stalemate in Italy is a reminder of how fragile and fast-changing the situation in the Eurozone is.
In fact, our analysis shows that investor’s attitude to some peripheral countries has changed; Ireland for example can now borrow at a cheaper rate in international debt markets than Spain or Italy. Businesses should continue to monitor the situation and avoid a blanket approach in assessing the environment in the Eurozone economies.
Closer to home, the Chancellor’s prudent Budget had a raft of promising announcements for businesses. These ranged from a gradual decrease in the headline corporate tax rate and lower National Insurance contributions to a “Help to Buy” scheme intended to spur activity in the construction industry.
But the low-growth, high debt environment most advanced economies including the UK face, means the main burden of policymaking falls on central banks.
This month we also review the current debate on monetary policy, where governments are asking their central banks what more they can do to promote economic growth. For example in Japan the government has concluded that its central bank can do a lot more and has reset the Bank’s inflation target to 2% from 1%.
But Japan’s persistent low inflation environment means that lessons may not be transferrable to other struggling economies where higher inflation continues to exert pressure on businesses.