Daily Management Review

Global investors are getting ready for economic slowdown


12/20/2018


Increasingly investors are expecting a slowdown in the global economy. The number of pessimists is now almost equal to their number in October 2008, that is, at the height of the global financial crisis. Analysts believe that the main reason for this sentiment is the US and Chinese trade war, which has a negative impact on other countries.



Spiros Vathis via flickr
Spiros Vathis via flickr
The December survey of portfolio managers conducted by analysts at Bank of America Merrill Lynch indicates a decline in investor optimism about the fate of the global economy. 243 representatives of funds with assets in the amount of $ 694 billion took part in the survey. According to the survey, the number of managers who are confident that in 2019 economic growth will slow down exceeded the number of those who continue to wait for global economic growth. Last time when investors looked at the prospects of the world economy with such caution was in October 2008. Then, against the background of the global financial crisis, there were 60% more of pessimists than optimists. However, only 9% of respondents expect a slowdown in the global economy.

A year earlier, managers were more optimistic about the future. In December 2017, a third more respondents expected economic growth to accelerate than those who expected a slowdown in the global economy. Expectations of the managers were justified: the global economy could grow by 3.7% this year, according to the adjusted IMF estimate. If in 2017 Europe and Japan were the center of growth, but this year it was the United States. If in 2017, US GDP grew by 2.3%, and this year it is expected to grow by 2.9%.

Deterioration of investor sentiment can primarily explained by protectionist policies of the American president. In early March, the United States announced introduction of import duties on steel and aluminum. These were criticized by all trading partners, in particular Europe and China. In April, Beijing announced a return increase in import duties from the United States. In the following months, mutual restrictions between China and the United States expanded and multiplied. This led to the fact that since June, trade relations between the two countries have become a key risk with unpredictable consequences for the global economy.

A slowdown in the global economy will inevitably lead to lower company profits. 47% of respondents are waiting for it to happen in the next 12 months according to the survey. Investors have not demonstrated such pessimism for ten years.

source: bloomberg.com






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