RBS first issued its grim warnings for the global economy in November but events have moved even faster than feared. It estimates that the US economy slowed to a growth rate of 0.5pc in the fourth quarter, and accuses the US Federal Reserve of “playing with fire” by raising rates into the teeth of the storm. “There has already been severe monetary tightening in the US from the rising dollar,” it said.
RBS, The Royal Bank of Scotland, advised it’s clients to prepare for a “cataclysmic year” and a deflationary crisis that will be global. They’ve also warned that major stock markets falling by a fifth is possible, and oil could drop as low as $16 a barrel.
The credit team at RBS said the markets are showing stress alerts similar to those in 2008, just before the Lehman crisis. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.
Global debt ratios are at record highs and global trade and loans are tightening. Andrew Roberts, a research chief at the bank, says equities and credit is now dangerous. He also expects Wall Street and European stocks to fall by 10% to 20% with an even larger drop for the FTSE 100 which is heavy with energy and commodities companies.