One should not expect rate hike in Eurozone before end 2019: Jean-Michel Six, S&P Global

In an interview with ET Now, Jean-Michel Six, S&P Global, says prospects for emerging markets exports remain strong and weaker currencies in general are likely to gain market shares.

Edited excerpts:

The annual report of the five-member German Council which advises the German government have said that the ECB’s expansive monetary policy is going to risk jeopardising financial stability and create market volatility. What is your view on that?

Yes, there are different views across the European Monetary Union as to what ECB should do. What you are indicating here is the German view which remains a minority view. Certainly, the German economy is doing much better than the rest of the union and that explains why they are more concerned about the continuation of accommodative monetary policies. But our view is that for the next couple of years, the ECB policy will remain very accommodative and one should not expect any rate hike in the Eurozone before the end of 2019 at least.

What about the crisis in Spain? What is the impact it has as far a as global growth or European growth is concerned?

Yes, indeed. The Catalonia crisis has attracted a lot of attention in the media and rightly so but it has remained contained in the political sphere, the economic impact on the Spanish economy has so far been very limited as was demonstrated by the most recent indicators that we received in the past 10 days on business and consumer sentiment in Spain.

With the prospects of new elections in December, we expect the Catalonia crisis will be contained and will reach an end at the end of this year. The economic impact on the rest of the European Union and specifically on the Spanish economy so far has been extremely limited.

I want to ask you a broader question. With what Mario Draghi had to say so far as far as unwinding goes, how does it fit in with the other two big events? I am talking about Brexit as well as what is happening in the United States where you may see a rate hike and the unwinding of the balance sheet?

Let’s start with the US. Clearly next year, we are likely to see diverging trends between the US Fed Reserve, that is likely to tighten and hike interest rates at least two more times in 2018 and the ECB which will remain very accommodative, very dovish. Although as announced, we expect it will reduce the pace of its monthly purchase on capital markets to 30 billion euros a month but still remain very dovish that the net impact is likely to result in a stronger exchange rate of the US$ against the euro and other currencies.

As far as Brexit is concerned, the impact so far on the European Union has been relatively limited. There are obviously some concerns about the negotiations which are not going well. In fact, little progress has been made so far and we are starting to see the impact of these negotiations or lack thereof on investment prospects, especially in the United Kingdom.

Uncertainties about the status of UK after 2019 vis-à-vis the single market are obviously weighing on business prospects in the UK but more than in the rest of the European Union at this point.

What are the looming challenges that the German economy is seeing right now? Some that the government is looking to tackle include the demographic change and digitisation as well as social welfare. What do you believe are some of the other key challenges that need a relook?

Clearly the demographic challenge in Germany remains a significant one and one that is not going to go away in the next few years but will get probably worse in the next few years. The German economy and Germany as a nation is also facing migration challenge. Over a million migrants have entered Germany in the past year-and-a-half. They need to be trained. They need to be integrated in German economy and that is going to take years. Meanwhile, populism is likely to increase.

We have seen that for the first time since 1945, the far right party, the AFD is now sitting at the German parliament the Bundestag. This is obviously a new challenge for Chancellor Merkel.

Could you also just tell us about emerging markets trade in terms of exports? Do you think that despite currency moves -- some currencies have weakened quite a bit -- emerging market exports are yet to pick up or do you think that can happen in this year or may be next year?

We have been seeing in the past nine months in particular, a very spectacular recovery in world trade that was primarily driven by emerging markets and all the indicators suggest that 2018 will be another strong year for those economies given the economic cycle in the United States, in Europe, in other developed markets. The prospects for emerging markets exports remain pretty strong and weaker currencies in general are likely to help if anything gain market shares.