Terry Tang, Investment Advisor
July 15, 2019
Slowing Global Growth
The global economic growth is off to a slow start in the first half of 2019, as The International Monetary Fund (IMF) downgraded its outlook for most major advanced economies for the third time, amid increasing trade tensions and tariff hikes between the U.S. and China.
The IMF cut its forecast for global growth from 3.5 percent to 3.3 percent, down 20 basis points. It also cut its forecast for U.S. growth to 2.3 percent, Euro Area to 1.3 percent, and U.K to 1.2 percent this year1. Trade tensions and uncertainty surrounding Brexit are raising economic risk in the Euro Area, and increasing the likelihood that the Europen Central Bank will add monetary stimulus very soon2.
1 Source: World Economic Outlook, April 2019, The Monetary Fund
2 The EBC has signaled that monetary stimulus is on the way to fight flagging inflation. There has been speculation that quantitative easing may be back.
Trade War Drags On
The U.S. and China have reached a truce in the escalating trade war, and a new round of trade talks has begun following a meeting between the leaders of the two largest economies at the G20 Summit in Osaka, Japan.
Nevertheless, the path to ending the trade war is far from clear. Arguably, last December they reached a similar agreement at the G20 Summit in Buenos Aires and it ultimately led to failure. It is very likely that the trade war will drag on for a longer time.
Is Recession Coming?
There has been many speculations about the coming of an economic slowdown, and with good reason. The United States have been experiencing the longest economic expansion in history, from 2009 up until the present moment. Recent stock market volatility and the inversion of the yield curve3 are indications that the economy may be heading for a recession.
According to a study conducted by the Duke University of Fuqua School of Business, approximately 67 percent of CFO believe there will be a recession by the third quarter of 20204. Nevertheless, strong economic data and Fed’s willingness to cut rates should help ease investors’ concerns and prolong the already elongated economic expansion.
3 Earlier this month, the yield on the 30-year U.S. Treasury bond was less than the Federal Reserve's short-term federal funds rate, which currently sitting at 2.5 percent. The yield on the 10-year U.S. Treasury bond has been hovering at 2 percent.
4 Source: CFO Global Business Outlook, April 2019, Duke University
The views and opinions expressed are those of the author and may not necessarily be those ofAligned Capital Partners Inc. The content is for informational purposes only andnot meant to be personalized investment advice.