Given the volume of news in 2017, finding a common theme to make sense of the noise has proven challenging. However, as we start 2018, there is an argument to say that 2017 was defined by the actions of the world’s Central Banks.
After years of unconventional monetary policy, the actions of the Federal Reserve, the Bank of Japan, the Bank of England, and the EBC have begun to deliver results. The spectre of deflation has been defeated and inflation appears to be increasing across the world’s major developed economies. Economic growth has picked up in the Eurozone and Japan, while emerging markets have survived the first few US interest rate hikes without causing a collapse. But just as the achievements of these policies have been recognised, so have the costs.
As central bankers discouraged saving by reducing interest rates close to zero, investors were forced into equities and real assets. This led to a surge in global property prices and record levels of investment in global start-ups, crypto-currencies, and passive indexes. Rising property prices have led to bans on second homes across developed economies from New Zealand to Western Canada, and clamouring calls for a ban in London. In many developed economies, the average property price is now well beyond the 4x annual salary against which banks will provide loans, forcing a greater proportion of people to rent than ever before.