Opening Statement from the January 2020 CCPM Forecaster
Originally published on January 6, 2020 (pre-market release)
Global Economic Overview
For the first time in several years we are witnessing the convergence of numerous macro risk factors which have weighed on investor sentiment. Sentiment continues to be led by trade disputes as well as the impact of persistently negative bond yields and declining interest rates. Meanwhile, geopolitical variables are increasing in prominence.
A broad assessment of the global macroeconomic landscape is sobering. The European Union economy continues to weaken as a result of the Washington-Beijing trade dispute. Moreover, significant levels of social and political unrest remain apparent.
This weakness in the EU has forced the ECB to extend the date of its first interest rate hike in more than a decade. In fact, our previous forecast of another rate cut by the ECB materialized recently.
In 2018 we mentioned that Germany would be adversely impacted by a prolonged trade dispute between Washington and Beijing given Germany’s high reliance on trade with China (Intelligent Investor). Over the past year Germany has reported two quarters of declining GDP growth. And it might already be in a recession by the time GDP data are revised. The EU’s second largest economy, France is not doing much better. Meanwhile, Italy remains in deep trouble.
The UK economy reported its first decline in GDP growth (q-o-q) in ten years while the pound continues to get hammered as a result of the uncertainty regarding if, when and under what conditions England intends to leave the EU.
Latin America remains volatile led by an unprecedented economic and political crisis in Venezuela which continues to be marked by chronic hyperinflation which has led to human suffering. U.S. economic sanctions have made the situation much worse.
Argentina faces its own political turmoil and ongoing economic crisis, having received the largest loan in IMF history. And Brazil continues its struggle to recover from its worst economic and political crisis in history. More recently, Bolivia and Chile are now experiencing social unrest.
Despite several attempts to boost growth, the Japanese economy remains weak. And we cannot forget about ongoing tensions between South Korea and Japan stemming from a legal dispute from forced Korean labor during WWII. The dispute has created numerous trade issues including Korean boycotts of Japanese goods.
Political crises in Iraq and Lebanon have recently added to the many challenges in the Middle East (i.e. Syria, Iran and Saudi Arabia).
Although the Chinese economy has managed to hold up relatively well during its trade dispute with the U.S., we remain skeptical regarding the accuracy of its publicly reported economic data. Even still, GDP growth continues to decline and has now reached a 27-year low at 6.0%.
With a slowing economy and mounting trade pressures, China remains in a vulnerable position with nowhere to turn. Over the past few years China’s total debt has skyrocketed to 300 percent of GDP accounting for 15 percent of all global debt.
Unlike the situation prior to the 2008 global financial crisis...
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