Is the global economy actually in good shape?


We were of course due to leave Europe today, but it looks as though we will be in for a little longer.
It has been hard to concentrate on any financial news that is not about Brexit, but not only is there economic life outside the EU, we will probably need to become more involved in it.
This might be a worry for many of us who had heard that a global recession may be on the way – but things might not be as bad as we have been led to think.

Who says there is a downturn coming?

Since the last quarter of 2018, commentators on the global economy have voiced fears of imminent recession.

The International Monetary Fund is ready to slash its forecasts for the global economy, seeing trouble between the US and China and problems across Europe as likely triggers. Brexit – there seems to be no escape from it – may bring a downturn to Germany, where there is already a fall in factory orders.

The Managing Director of the IMF, Christine Lagarde has warned that “the economic weather is unsettled.”

Of course, no one wants another recession. Many of us have still not got over the effects of the global crisis of ten years ago. As a result, central banks have changed their minds about raising interest rates, determined not to choke off any recovery.

Possibly partly in response, equity markets have rallied strongly in the last three months or so.

But is this going to be enough to avoid a downturn?

Recessions are caused by many factors, but one of them is a lack of confidence. It can help to look at some objective data to see whether we have reasons for confidence – and one objective measure is the state of PMIs.

A PMI – or Purchasing Managers’ Index – gives a measure of how decision makers in a particular business sector, region or country feel about the future. A score above 50 means the sector under scrutiny is expanding. If it is below 50, it’s shrinking, and if it stays below 50 for any length of time, it suggests that the sector is heading for trouble.

If PMIs from a variety of sectors all show shrinkage, the entire economy might be facing difficulties.

So, have the efforts to stimulate economies been working?

The good news is that at least in the world’s two most important economies – the US and China – PMIs are back above 50.  In China the PMI index rallied back into expansion in March, after some indication of shrinkage in February. There has been a 30% surge in the Shanghai Composite Index this year, and the stimulus from the Chinese government is to continue.

The US is showing a healthy 55, with new orders and rising employment. Elsewhere, the picture is more mixed, although it is interesting to note that here at home, UK Manufacturing PMI rose to 55.1 in March 2019 from an upwardly revised 52.1 in February. This suggested the strongest pace of expansion in the manufacturing sector since the early months of 2018, leading to new work and employment growth.

So, will we have a boom instead of a bust?

Mme. Lagarde told an audience in Washington last week that she believes 70% of countries will experience slowdown in growth this year. But although she went on to say that ‘the global economy is at a delicate moment’, a slowdown in growth is a very different thing from a recession.

We might not get a boom, although stranger things have happened – but at least we may no longer be set for recession.

Of course, whatever the global economy does, it is your own financial outlook that is really important to you. In an uncertain world, you may want to spread your investment across a diverse range of markets, and across a variety of assets.

Expert investment advice may well be vital for your peace of mind, and to help you assemble a properly diversified portfolio. You can be certain of getting that advice, simply by calling us at Continuum.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

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Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

Sources:

bloomberg.com – The Bull Case for China Stocks Is Sticking Around – 8th April 2019

tradingeconomics.com – United Kingdom Manufacturing PMI

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