‘Lack of quantitative easing delayed Irish recovery’

The absence of quantitative easing has delayed the recovery in Ireland and other eurozone periphery countries, according to Guy Monson, managing partner at the London-based asset management firm, Sarasin & Partners.

The US economy is now on a path to accelerated growth with most indicators, including new house sales at multi-year highs. Moreover, US GDP is now 6% higher than it was at pre-crisis levels.

The UK has just seen “an astonishing set of upgrades, mostly over the second quarter, with one of the largest turnarounds in sentiment ever seen.” However, UK GDP is still 3% below pre-crisis levels.

“In Ireland, tax revenue is up, the PMI is up, house prices are flat and the unemployment rate is stabilising, but there is one very frightening figure and that is that GDP is 10% below pre-crisis levels,” said Mr Monson, who was in Dublin for the opening of Sarasin’s Dublin office.

“The difference between these three countries is quantitative easing. The US is still undergoing a very ambitious quantitative easing programme.

“The UK abandoned its quantitative easing programme 18 months ago and the ECB didn’t do quantitative easing, mostly for political reasons.”

ECB president Mario Draghi has done everything in his means, including the LTRO programme and forward guidance, to get the eurozone through the crisis that threatened the viability of the euro. The prospects of a eurozone breakup are “now very limited,” he said.

The current bull run in the equity markets has not yet reached the halfway point, he added.

But some market analysts claim that there is another crisis looming because the current ultra-low interest rate environment is masking an extremely fragile recovery. Not enough reforms have been introduced over the past few years so when interest rates rise again, the recovery will quickly unravel.

Mr Monson said he has “some sympathy” for this view, but points to the willingness of central bankers to maintain low interest rates until there has been a sustained recovery in employment.

Moreover, the global backdrop is becoming more benign with oil prices continuing to soften and food commodity prices also moderating.

European banks have the potential to become lucrative dividend plays over a three to five year period, despite ongoing stress tests and Basel III requirements, he added.