From European despair to where?

EUROPE

Andrew Parry, CEO of Hermes Sourcecap, says too much belief in the power of central banks to ignite growth could delay structural reform and breed complacency in Europe.

Lack of sales growth in Europe and globally illustrates the structural challenge for the market: rising margins have come at the cost of capital investment and job creation. The worry is low growth globally is hampering fixed capital formation – the source of long-term wealth creation in an economy – even though interest rates are at extremely low levels by historic standards (see graph, below). Corporate cash balances are at record highs yet companies still favour share buybacks over capital investment despite the apparent low cost of capital. The key is going to be how deep and endu...