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Updated 18:30 17/09/19

RBS sell everything as deflationary crisis nears

By Duncan Richardson, News Editor

12 Jan 2016

The Royal Bank of Scotland has warned its clients to brace themselves for a “cataclysmic year” and a worldwide deflationary crash. The bank believes major stock indices could fall by 20% and oil could trade as low as $16 per barrel.

The banks credit team believe today’s economic outlook is similar to the conditions prior to the 2008 Lehman crisis. RBS are recommending clients sell everything except high grade bonds. In a note to investors the bank warned return of capital is more important than capital gain in 2016.

Andrew Roberts, head of the bank’s credit team is expecting the FTSE to fall by over 20% with energy and commodity firms being hit the hardest. Roberts, believes the oil price could continue to plummet to $16 per barrel, a price last seen during the 1999 Asian economic meltdown.

RBS issued their first economic warning in November, however, events have moved faster than they originally feared. The bank estimates U.S GDP dropped to 0.5% in the fourth quarter and have accused the Federal Reserve of “playing with fire” by raising interest rates in the face of an economic slowdown.

The bank believes the slowdown in China is putting the global financial system under pressure and believes the events in China could trigger an economic crisis. RBS is not the only bank worried. Last week Swiss bank UBS issued their own warning to investors over the state of the global economy.

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