ING Group says Eurozone is likely experiencing period of ‘Japanification,’
The anaemic development and inflation of the eurozone mean that it is likely already undergoing its own “Japanification,” and it could be challenging to flee if the track record of the Asian nation is any guidance, according to ING Group.
The scenario in Europe remained accessible to similarities with Japan in the 1990s for a long time. ING mentions similarity in a study on Monday, including a rise in government debt, a buildup of bad bank credits, an ageing population, and a massive loosening of monetary policy.
While Japan’s policy response to its crisis has been slow, it has also fallen victim to bad timing, according to ING. The 1997-98 Asian financial crisis, then the dot-com bubble burst and later the global financial crisis have snuffed out various chances of recovery.
That may well also be the destiny of the euro area, which seemed to be on the brink of unwinding stimulus to be held away in the opposite path last year. With global trade conflicts sitting close a record high on feeling and inflation projections, the European Central Bank is confronting the possibility of interest rate reductions or quantitative easing re-starting.
“Without a powerful regeneration, it is hard to avoid poor development, high inflation and consequently poor environmental levels,” said ING economists Carsten Brzeski and Inga Fechner. “Economic upturn could be over rapidly, and monetary policy might not have sufficient ammunition up its pocket, with interest rates staying at null for years to arrive.” There is also the possibility of higher pension levels to prevent the decline of the labour force.
“The most significant lecture for the eurozone is likely not so much Japanification’s root cause as the hopeless efforts to get it out,” ING said. “In the coming years, there will be little room for price hikes.”