ECB urges Europe-wide trading platform for bad bank loans
The European Central Bank called on Monday for the creation of a private sector platform to trade in soured bank debt, hoping to kickstart a dysfunctional market weighing on the bank sector. Euro zone banks are sitting on around 800 billion euros worth of non-performing loans (NPL). The ECB has made it a top priority to tackle the issue as these bad debts, now too difficult to swiftly move off lenders’ balance sheets, are holding back lending and limiting the effectiveness of the ECB’s policy stimulus. It has recently proposed tougher provisioning guidelines on new NPLs and said it would come up with new rules on older bad debt, drawing fierce opposition from the most affected countries, such as Italy. A possible solution to NPLs would be the creation of a single platform that acts as a data warehouse for bad debt, a transaction system and a trade data repository, the ECB said in an article that forms part of its biannual Financial Stability Review. The platform would increase transparency, reduce transaction costs, improve coordination in the case of multiple creditor claims and open the market to new investors, the ECB argued. “Wider investor participation may have a number of important benefits that result in lower bid-ask spreads: price competition in the market may be increased and investors with lower risk tolerance may enter the market,” the ECB added.
China, wary of market risks, likely to keep GDP target in 2018: policy sources
China’s leaders are likely to maintain this year’s growth target of “around 6.5 percent” in 2018, even as they ratchet up efforts to prevent a destabilizing build-up of debt in the world’s second-largest economy, according to policy sources. Policymakers will be under pressure to balance efforts to tackle debt with the need to keep growth on a steady path, they said. Investor concerns over a crackdown on debt was highlighted last week when a sell-off in bonds spread to the stock market. Top policymakers are expected to gather in December for the annual Central Economic Work Conference, which investors watch closely for policy priorities for the year ahead, amid a crackdown on riskier banking and investment activities. “Next year’s growth target could be similar to this year‘s,” said a source who is close to policy discussions within the government. “It’s OK as long as we are able to secure growth of 6.5 percent.” President Xi Jinping said at the Communist Party Congress in October that China must defuse “major risks” in the economy, and fight poverty and pollution. But he is also committed to meeting a goal set by the previous administration of doubling gross domestic product in the decade to 2020, to turn China into a “modestly prosperous” nation. That means that growth needs to be around 6.5 percent in each of the next three years.
Forecasts for U.S. Growth Are Too Pessimistic
Since the recession ended in mid-2009, the U.S. economy has averaged annualized growth of just 2.2 percent and the Bloomberg consensus forecast does not expect it to grow much faster in the year ahead. Estimates of real growth are just 2.4 percent in 2018. Some forecasters assume a stronger expansion as a result of the Trump administration tax legislation. Our sense is that the consensus appears awfully complacent, as growth is picking up irrespective of changes to fiscal policy. Thus, there are upside risks. For starters, the economy is already growing at a 2.4 percent in 2017. After a weak first quarter, it seems poised to post three consecutive quarters of at least 3 percent growth. Current quarter tracking estimates from the New York Fed and Atlanta Fed are 3.8 percent and 3.4 percent respectively. If these estimates hold, it would indicate strong momentum heading into 2018. In contrast to previous years, when growth estimates were generally cut as time went on, these expectations will likely move up as 2017 comes to a close.