The four furies and the quest for balanced growth

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In the opening months of 2011 fast-moving events have reshaped the three dimensions – economic, financial and geopolitical – that frame the investment universe. Moreover, their complexity has amplified the sheer intensity of these developments.
These events have raised four crucial threats to the recovery scenario which has been confirmed by several strengthening underlying trends in recent months. Still, our core scenario for 2011 takes these risks fully into account even though the fourth problem – North African unrest – is comparatively recent. These four questions are: (1) What will happen to the exchange- rate regime based on the dollar standard? (2) Will inflationary pressures persist and what is likely to be the impact for growth and exchange rates? (3) Will US growth become sustainable? (4) Will the unrest in North Africa destabilise the whole of the Middle East and send the oil price permanently higher?

These risks over our core scenario of growth and rising equity markets are increasing just as a growing number of investors have been turning more optimistic.