Economists are not easily shocked

Posted by: Paul Donovan

01 Mar 2019
  • Economists are not easily surprised. Over the last four months, the global economy has grown as economists expected. On balance, there have been few shocks in the economic data. Labor market data has been stronger than expected in some economies. However, industrial data has been a bit weaker. Economists forecast global growth to slow from above trend in 2018, to trend in 2019. That is what is happening. The Bloomberg global growth consensus forecast for this year is still 3.5%.
  • Despite the global economy doing what was expected, financial markets have swung violently. Equity weakness has been replaced by equity recovery. This is about relative growth, not total growth.
  • The risks around global trade hurt equities more than they hurt the economy. About 80% of global trade is conducted by equity listed firms. Trade tariffs can be considered a tax on equities. If risks of trade taxes rise, equities should do worse than the economy. If risks of trade taxes fall, equities should perform the same as the economy. Higher trade risk in late 2018 hurt financial markets. Lower trade risks in early 2019 meant a lower risk of new equity taxes. This has helped financial markets recover.

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