Newell Palmer: Monthly Economic Notes – October 2019

Newell Palmer: Monthly Economic Notes – October 2019

Economic Overview

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

Newell Palmer: Monthly Economic Notes – September 2019

Economic Overview

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

Newell Palmer: Monthly Economic Notes – August 2019

Newell Palmer: Monthly Economic Notes – August 2019

Economic Overview

Is secular stagnation a possibility in the coming years?  It is about a persistent downturn that does not respond to easy money.  In 2013, the former US Treasury Secretary Larry Summers speculated that the real interest rate at which savers and borrowers would agree to exchange funds may have been falling for decades and even turned negative.  This complicated the task of central banks, who could not push interest rates too far below zero without destroying banks’ profitability and fanning asset bubbles.  However, without meaningful inflation, real rates under secular stagnation would, even with zero or slightly negative nominal rates, stay higher than what borrowers could afford, stifling productive investment.  Without aggressive fiscal policy, the economy could remain stuck in a low-rate, slow-growth rut.

Monthly-Notes-August-2019.pdf