When will those dark clouds all disappear
After a tumultuous year of geo-political, political and economic change global growth has slowed to its lowest annual rate since the financial crisis. Growth slowing to 3% and a benign inflationary environment provided the backdrop for global central banks to cut interest rates and provide monetary stimulus. This volte face from the more hawkish stance in 2018 has helped drive the prices of financial assets higher despite macro risks remaining and elevated levels of uncertainty.
Rays of sunshine
We are currently experiencing the longest economic recovery on record. As the decade long expansion came under threat in 2019, we witnessed a resilient consumer and service sector, providing support and offsetting the weakness in manufacturing and global trade. Fears that a lack of confidence in the manufacturing sector would morph into recession for the rest of the economy did not materialise. Monetary stimulus from the US Federal Reserve (Fed), European Central Bank (ECB) and China helped to offset some of the barriers put in place by government policy.
More recently after nearly two years of slowing growth, there have been tentative signs of a pickup in activity. According to the latest IHS Markit Global PMI data, growth ‘accelerated’, with strong growth in the service sector and an easing of the drag from the manufacturing sector. Employment, new order inflows and business expectations all showed signs of improvement. Growth was led by the US but data for the UK suggested the UK economy was contracting, with concerns as to the outcome of the general election accompanying uncertainty around Brexit. Whilst far from over, the worst case scenarios of two of the largest contributors to global uncertainty appear to be averted. US and China appear set to agree a trade deal and there is clarity at least between the UK-EU as to the timing and direction of travel regarding Brexit.
Chief Investment Officer