Monetary Policy & Global Economy

Bank of Finland has released their paper on "Monetary Policy and Global Economy". It is a nicely done concise report and could be accessed here.  Some of the points and my observations are

1. Euro zone growth was picking up but slowed down in the second quarter of 2014. This was due to Germany slowing down and Italy going back to recession. The Geopolitics of Ukraine and Russia didn't help either.

2. The fastest growing European country would be England. USA will continue the growth curve and China will still grow briskly if slower than past.

3. The inflation in Euro-zone is going to be below the target level, which should allow ECB to cut interest rates. However to address long term interest rate ECB will have to introduce Quantitative Easing (similar to US Fed) and buy asset backed securities.

4. As expected, yesterday, US Fed committed for keeping the long term interest rate to their continued low figures. You can't blame the market to have jitters before every such planned policy communication. However with Europe still struggling to grow, the ECB keeping the interest rates low, and planning on QE,  Fed would never have gone the other way.

5. The Bank of Finland report, having reduced the growth rate for 2014, has kept 2015, and 2016 rates unchanged. I think this is highly presumptive. We have not seen the full extent of Ukraine crisis. There has to be refinement of 2015 and 2016 figures. Also Germany is getting some systemic issue of high energy cost - this is affecting the investments. This effect has to be factored as well.

Overall quite a good view of the global macro-economy.