People have got so used to ultra-low interest rates amid talk of stagnation and deflation that they can barely imagine anything else. But an interesting talk last week by Charles Dumas of Lombard Street Research suggests that the West is in solid shape, rate rises may be closer than we think, and the 35-year bond bull market is over.
The speech concentrated on the eurozone economy, which Dumas says is in better shape than most analysts realise. The German economy is 7% above its pre-crisis peak; Spain is growing at more than 3%. The euro's inflation-adjusted exchange rate is over 10% lower than during the eurozone crisis, making European products very competitive on world markets. The collapse in the oil price in 2014 was an "extraordinary stroke of luck" that fuelled "impressive" household spending and also lowered inflation, prompting the European Central Bank to keep printing money. Solid trade and consumption has underpinned strong capital spending.
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