Interest rates are set to stay at their current levels in America and Europe for the whole of 2011, says Keith Wade, the chief economist of Schroders.
Speaking at the group’s international media conference today, Wade says base rates will need to stay at their current levels as austerity measures kick in next year. Indeed he adds this is especially the case as many countries will see their debt levels exceed 100% of GDP next year.
Meanwhile, Wade says the global economy is entering a second phase in its recovery, which he says needs to be driven by consumer and corporate spending.
This is unlike the first phase of the recovery, which he argues was more driven by adjustments in inventory cycles. (article continues below)
“While government spending is set to stay weak, the corporate sector is in a strong position at the moment, says Wade. “US corporate profits are set to rise 50% in 2010, which is a remarkable result.”
One theme of 2011 that Wade picks out as being important is that the benefits of a global recovery will be more evenly distributed. For example, he predicts employment to increase which will have the knock on effect of leading to a rise in consumer spending.
“The private sector is recruiting again and this puts us in the optimistic camp,” he says.
As for the euro crisis, Wade says that in five years time the euro, in terms of its composition, may look very different, possibly without Greece, Ireland and Portugal.
As for the other argument of Germany being the one to leave, Wade says while a new deutschmark would “go through the roof” he argues on the flip side it would cause the German banking system to collapse.