Global economics in The Monday Briefing
Global warnings
The global economy has been slowing for some time. The question is whether we are heading for a soft landing or something worse.
Financial markets last week raised the odds on ‘something worse’. Investors sold riskier assets, including equities, for safe havens such as gold and government bonds. Markets were reacting to alarm signals from two of the world’s most important economic indicators.
First, the yield curve, a gauge of future growth prospects, inverted last week in the US and in the UK. The yield curve measures the gap between the interest rate, or yield, on ten-year government bonds and shorter-maturity debt. Central banks largely set short-term interest rates while long-term yields are driven by market expectations for growth and inflation. When ten-year rates fall below three-month rates, as they have done in the US and the UK, the curve inverts signalling that short rates are too high and growth prospects are weakening. The fact that each of the last seven US recessions were preceded by an inverted curve explains why the equity market took fright last week to the inversion of the yield curve.
Holiday Quiz
Our summer quiz offers a test of your knowledge of holiday-related trivia through an economics lens. The answers along with a brief explanation are at the end of this note.
Where is the cheapest housing?
House prices in the developed and developing world have risen rapidly since the financial crisis.
Summer reading list
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. To subscribe and/or view previous editions just google 'Deloitte Monday Briefing'.
Assessing the outlook for global growth
Economists went into 2019 forecasting a slowdown in global growth. That slowdown has come faster than expected. Alarmed by the speed of the downturn, the US Federal Reserve and European Central Bank have switched from tightening monetary policy to easing.
The combination of slower growth and easier policy has elicited very different responses from business and financial markets.
Equities rally on prospect of cheaper money
At the beginning of this year equity markets were reeling from a sell-off driven by fears over global growth and rising US interest rates.
Are we doing better than we think?
It is commonplace to say that the pace of technological change is speeding up. From Twitter to online shopping our everyday lives are, apparently, being transformed.
Central banks to the rescue – again?
This morning we are launching our second quarter “Global Economy in Charts” report, available here - https://blogs.deloitte.co.uk/mondaybriefing/2019/
06/global-economy-in-charts-q2-2019.html
China’s Belt and Road Initiative
China’s growth rate has slowed in recent years. Its sustainable growth rate has almost halved, to around 6.0% in a decade or so.
By Western standards this is an unattainably rapid growth rate. It would enable China’s economy to double in size every 12 years. China is still a fast-growing country, and one that exercises growing authority on the world stage. From technology to overseas investment and geopolitical influence China increasingly matters.