Markets speculate. Economists wait.

Posted by: Paul Donovan

28 Jan 2020
  • Markets are speculating on the effects of the coronavirus. The economic impact remains impossible to assess at this stage. Three structural changes create economic uncertainty. We must wait for a proper economic assessment of the costs: 1) the rise of online spending, limiting consumer damage; 2) the rise of social media, spreading fake news and fear further and faster; and 3) the rise of China's share of global manufacturing, potentially increasing supply chain disruption.
  • There will be a focus on the effect on global GDP, but global GDP is a meaningless number. What matters is if a Chinese slowdown affects European or US growth. Almost half of European exports to China are investment goods, and investment slowed down last year. A consumer slowdown in China has less direct impact on Europe.
  • Sweden has producer price and retail sales data. Typically Sweden is not at the forefront of global market concerns. However, the ending of negative rates means that Sweden's economic performance is likely to get more attention at the ECB, and thus is worth watching.
  • US durable and capital goods orders data is due. Core capital goods growth has been a downwards ski slope as a result of uncertainty over US President Trump's trade taxes.

Explore more CIO Daily Updates