Global growth picks up as markets stay calm in the face of geo-political risks - NAB

Analysts at NAB explain that the lift in advanced economy growth has helped drive global growth toward trend and both the business surveys and our leading indicator point to continued expansion.

Key Quotes

 “The emerging market economies generally drive most global output expansion but their growth has stagnated recently. This could start to improve now - China’s economy has avoided the much discussed “hard landing”, the impact of the policy changes that have held back Indian growth should pass and the Russian and Brazilian economies are now gradually recovering from deep recessions.  As these economies ranked as 1st, 3rd, 6th and 8th biggest in the world and cumulatively represent one-third of the global economy, that helps explain the lift in global growth to a slightly above trend 3.6% in 2018 from 2017’s 3.4%.”  

“The nature of the risks that threaten to de-rail this quite rosy global outlook has changed.  Many of the most severe tail risks – low probability high impact events that would really damage the global economy – have faded in the last few years.  The Euro-zone has not collapsed, the world has not fallen into deflation, there has been no overly aggressive tightening of monetary policy by central banks, US-China trade tensions have risen but full-scale global trade wars have not broken out. In their place, new risks have loomed into view – especially the geo-political situation involving North Korea.”  

“So far, the markets have remained surprisingly relaxed about this heightened risk – the VIX index of financial market volatility has stayed low by historical standards, government bond yields have stayed low and actually resumed their downward trend so investors are still around at these low yields, and corporate credit market pricing is not showing any great lift in concern over default risks.”