Winner Takes It All
In our last Economic Background of the decade global growth has weakened to 3%, its slowest pace since the global financial crisis and a material slowdown from 3.8% in 2017. Rising trade and geopolitical conflicts are contributing to the background of uncertainty alongside muted productivity growth and a distinct slowdown in global manufacturing sectors.
The global slowdown is occurring at a time when monetary policy has eased significantly across developed and emerging markets. This is now the most synchronised global easing period since the financial crisis, with 60% of central banks in a cutting rate cycle and central bank balance sheets set to increase to new highs.
Monetary policy has been used extensively to try to steer economies through the effects of various crises and prolong the economic expansion. More recently central banks have tried to mitigate the worst effects of the US-China trade dispute, through rate cuts and increases to liquidity in their respective financial systems. However with interest rates low and signalled to remain so, global inflationary expectations remain subdued. The extraordinary stimulus since 2009 has led to some inflation but this has been almost entirely in the inflation of asset prices. Increasingly central bankers are openly willing to accept higher inflation, highlighting the limitations of monetary policy and encouraging governments to release the fiscal purse strings. This is manna from heaven for those politicians keen to utilise the low interest rate environment to enact their policies.
Chief Investment Officer