Relief over Scotland gives way to ‘Great Stagnation’ worries

The Group of 20 leading nations, meeting at the weekend, said they were tantalisingly close to adding an extra $2 trillion to the global economy and creating millions of new jobs.

But Europe’s extended stagnation remains a major stumbling block and some big emerging economies are flagging too.

Brazil is expected to revise down its growth rate just three weeks before a presidential election, Russia is mired in economic sanctions over Ukraine, and China’s weak data is partly responsible for the 15 per cent fall in the price of Brent crude since early July.

Investors will be watching to see how long OPEC is willing to accept oil prices below the $100-a-barrel mark.

A common G20 concern is the risk of Europe’s malaise pulling others down. US Treasury Secretary Jack Lew cited “philosophical” differences with some of his counterparts in Europe, especially on the need for near-term stimulus.

However, “markets are spared one major source of political and economic uncertainty,” Jorg Kramer, chief economist at Commerzbank, said of Scotland’s decision to vote against independence in last week’s referendum.

Sterling touched a two-week high against the dollar and a two-year peak against the euro on the result.

Global stocks were lifted by the news from Scotland, as well as by the US Federal Reserve’s assurances last week that interest rates will remain near zero for a considerable time.

Fed Chair Janet Yellen suggested that despite an end to the US bond-buying stimulus next month, the era of easy money is not yet over. But she also indicated the Fed could raise borrowing costs faster than expected when it starts moving.

While the US economy appears to be strengthening, euro zone data out this week is unlikely to point to much of a pick-up.

In April-June, the euro zone economy’s recovery stalled and Italy slipped into recession for the third time since 2008, underlining Europe’s struggle to recover from the financial crisis, what investment banks such as Goldman Sachs have called the ‘Great Stagnation’.