Companies & Markets

UBS's Weber warns of prolonged economic weakness, polarization

Published Tue, Nov 17, 2020 · 08:04 AM

[SYDNEY] UBS Group AG Chairman Axel Weber said major economies face a prolonged period of uncertainty that will require ongoing ultra-loose fiscal and monetary policies, resulting in deepening social divisions.

Mr Weber told a UBS conference in Sydney on Monday that what's happening in the world now is unprecedented in the past half-century and warned that this may have diminished economists' capacity to understand and make predictions.

"Our understanding of the economy, our macroeconomic models are based primarily on these last 50-years," said Mr Weber, who helmed Germany's central bank during the 2008-09 global crisis. "Neither our understanding of the economy nor our macroeconomic models are well suited to understand and to forecast the current economic situation well." Global central banks have pulled down borrowing costs and deployed massive asset-purchase programs to support their economies through the pandemic. Governments have similarly sent budgets deep into the red to assist their citizens and finance stimulus programs to spur economic recovery.

Across many developed nations, monetary policy was already expansionary before the onset of Covid-19, resulting in inflated asset prices and exacerbating the divide between haves and have-nots.

Mr Weber sees more of the same ahead.

"The current situation we are in and we will remain in for several years is difficult," he said. "With elevated uncertainty, high government deficits and very expansionary monetary policies, this will further intensify the polarization in our societies, adding political uncertainty to the economic uncertainty." He urged policy makers, firms and investors to factor in a range of possible outcomes and to try to make their economies, firms, societies and portfolios "as robust as possible" in order to be prepared for the next surprise.