Where in the cycle are we?

Posted by: Paul Donovan

24 May 2019
  • Japan has the longest period of growth in post-war history. From June the US will have the longest period of growth in post-war history. Global unemployment is around a forty-year low. This hints that the economic cycle is quite old.
  • Economic growth does not die of old age. Growth ends when the economy overheats, or because of policy error. Overheating is not a risk today. Growth has gone on a long time, but global growth has been around trend for eight years. Growth has never been this stable for this long.
  • Independent central banks do not often make policy errors. While economists may argue about details, central banks are getting it broadly right.
  • Why do investors worry about growth? Past growth has not lasted so long, or been so stable. This is all new. Many investors were badly hurt by the crisis of 2008–2010, and fear a repeat. Market cycles are different from economic cycles. Equities may outperform or underperform economies.
  • Trade taxes may be a policy error. Trade taxes hurt the economy. Trade tax uncertainty hurts more. We do not think today's trade taxes will cause a recession. Uncertainty may push global growth some way below trend for the first time since 2011.