Newell Palmer: Monthly Economic Notes – November 2019
The two main developments in the past month are:
1. More strident commentary from the IMF and central banks that monetary policy (whether adopting low interest rates or quantitative easing policies) are becoming less effective to support economic growth as interest rates are already very low, and that fiscal policy (via increased government spending and lower taxes) will have to step in. However, most governments have been reluctant to adopt looser fiscal policies to-date, but this may change in the coming year.
2. Growing realisation in the US and China that the ongoing trade dispute and escalating tariffs are impacting the US and Chinese economies, with signs that tariffs may be wound back and a trade agreement could be signed.Monthly-Notes-November-20191.pdf
Newell Palmer: Monthly Economic Notes – October 2019
Globally, we have seen weak economic growth, and increasing fears of a slowdown or a possible recession in the next few years. As such, central banks have taken action to support the economic expansion by reducing interest rates. With European, Japanese and Australian interest rates at either negative yields or very low yields, central banks have reached the limits of conventional monetary policy. This leaves them with unconventional monetary policy such as quantitative easing (i.e. buying bonds) to further reduce long-term interest rates. Increasingly, central banks have now said that it is up to governments to start introducing fiscal stimulus, e.g. tax cuts or increased government spending, to complement monetary policy. Among the major developed economies, only the US has a positive nominal interest rate at 1.8%, but as the US Federal Reserve continues to reduce interest rates, a fiscal policy response may also be required in the US if the economy deteriorates.Monthly-Notes-October-20191.pdf
Newell Palmer: Monthly Economic Notes – September 2019
The underlying fundamentals for the global economy remain solid, reflecting tight global jobs markets, low inflation and very low interest rates. However, China’s new more aggressive negotiating position would portend further escalation in the US-China trade dispute, challenging the ability of the global economy to stabilise this year. Recent data suggest growth in the world economy slowed significantly in Q2 to 3.3% from its 4.3% pace just a year ago. The slowdown has been relatively evenly spread across both advanced and developing economies. Global growth remains well supported by historically ’easy’ monetary policy and near-universally tight jobs markets. The US consumer remains robust, China is amid renewed stimulus and domestic growth in Europe and Japan is solid. Australia has likely passed the worst of its housing crisis and recent business investment plans are holding up well. However the risks have increased that the cacophony of geo-political noise could sufficiently crush global business confidence and capex plans, so as to undermine the otherwise strong jobs and consumer sectors that are currently supporting growth and company earnings across the world.Monthly-Notes-September-2019.pdf