The global economy isn’t expanding fast enough to boost inflation.
So says Vincent Lépine, vice-president of global economic strategy (asset allocation and currency management) at CIBC Asset Management. He co-manages the Renaissance Optimal Inflation Opportunities Portfolio.
Inflation often occurs when employment improves, he adds, since businesses can then raise wages. Following that, consumer prices often rise.
That’s needed now since high debt loads are weighing on governments and households across the globe. Yet, nominal growth (the combination of real growth and inflation) is low in many countries.
This is the case in Europe, where the unemployment rate is still in the double-digits. To help spur inflation, the European Central Bank needs to put more money into its economy, says Lépine.
At the same time, fewer U.S. jobs have been created this year than expected. “The end result is there’s no wage pressure in the [global] system,” he adds.
Look on the bright side
Canadian exports are set to improve due to the dive in the loonie’s value.
Though currency volatility can have negative consequences, that drop may help balance out our nation’s current trade deficit, says Lépine, since the currency “has been too strong for too long, and Canada has lost its competitive edge.”
He adds, “Overall capital flows [have been] moving out of Canada more than moving in.” But, when the “central bank becomes concerned and vocal about the currency, there’s a good chance [it] will be impacted.” Then, goods could start flowing out of the country once again.
Currently, the loonie is still trading higher than its fair value, says Lépine, but it’s expected to drop further over the next twelve to 24 months.
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If clients are looking for opportunities in the meantime, help them research emerging markets. Those are more attractive at this point, he explains, because even though they’ve been underperforming developed markets for several years, the tide is turning.
Developed markets aren’t attractive as they have been, he adds, so people can consider looking for undervalued, emerging market stocks that are set to rise.