-
""

Passing the baton: from monetary to fiscal

4 minute read

12 November 2019

By Gerald Moser, London UK, Chief Market Strategist

Central banks can only go so far in sustaining the global economy. The role of governments, via fiscal measures, also matters. Is 2020 the year when governments at last pick up the baton and open the fiscal spending gates?

In the first quarter of 2019, central banks globally, with the US Federal Reserve being the most prominent, reversed course and loosened policy rather than tightening it. The policy shift helped to improve sentiment and bolstered areas sensitive to rates, such as the housing market.

Central banks reverse course and ease

More supportive fiscal policy

Fiscal spending is likely to increase in 2020, at last. But this additional spending is likely to be gradual. We do not expect a game-changing fiscal event to be seen in 2020, such as the significant tax cuts unveiled by President Donald Trump’s administration in 2017.

Turning to the US, as 2020 is a presidential election year and with Congress opposing President Trump it is unlikely that we will see much spending in the short term. However, depending on the outcome of November’s election and whether the new Congress is aligned with the president-elect, the market may start to discount any fiscal policy promoted by the new president during their campaign.

In Europe, there is a growing consensus for more fiscal action. But growth may need to decelerate further for some austerity-prone countries, such as Germany, to start opening the spending taps.

At the European Union level, there could be concerted actions on environmental issues. Christine Lagarde, the new European Central Bank’s president, is open to including more “green” bonds in the central bank portfolio. With climate change becoming a pressing topic for politicians, there is potential for more spending aimed at speeding up the energy transition towards less carbon emissions.

In the UK, once the Brexit saga concludes and a new government is in place, fiscal policy looks set to be more accommodative than it was in 2019, as politics returns to a semblance of normality.

Green initiatives to the fore

With fiscal policy likely focusing on infrastructure and environmental transition spending rather than outright tax cuts in 2020, investment opportunities are most likely to arise in targeted pockets rather than across the corporate sector. Industries and companies most exposed to efforts to reduce the impact of climate change, accelerate energy transition and improve infrastructure appear set to profit the most from increased spending in those areas.

For the time being, we would focus on green efforts but would carefully monitor development on the fiscal side to adjust our preferences as initiatives unfold through 2020.

""

We give you versatility and a choice of services

Barclays Private Bank provides discretionary and advisory investment services, investments to help plan your wealth and for professionals, access to market.

Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.

This document has been issued by the Investments division at Barclays Private Banking and Overseas Services (“PBOS”) division and is not a product of the Barclays Research department. Any views expressed may differ from those of Barclays Research. All opinions and estimates included in this document constitute our judgment as of the date of the document and may be subject to change without notice. No representation is made as to the accuracy of the assumptions made within, or completeness of, any modeling, scenario analysis or back-testing.

Barclays is not responsible for information stated to be obtained or derived from third party sources or statistical services, and we do not guarantee the information’s accuracy which may be incomplete or condensed.

This document has been prepared for information purposes only and does not constitute a prospectus, an offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it.

Any offer or entry into any transaction requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding transaction documents. Any past or simulated past performance including back-testing, modeling or scenario analysis contained herein does not predict and is no indication as to future performance. The value of any investment may also fluctuate as a result of market changes.

Neither Barclays, its affiliates nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.

This document and the information contained herein may only be distributed and published in jurisdictions in which such distribution and publication is permitted.  You may not distribute this document, in whole or part, without our prior, express written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions.

The contents herein do not constitute investment, legal, tax, accounting or other advice. You should consider your own financial situation, objectives and needs, and conduct your own independent investigation and assessment of the contents of this document, including obtaining investment, legal, tax, accounting and such other advice as you consider necessary or appropriate, before making any investment or other decision.

THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IT IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.