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Crystal Wealth Newsroom

Positive economic signs for 2020

Investments

The global economy has been affected by several key factors in recent years. From the premature tightening of US monetary policy in 2018 and Brexit gyrations to US-China trade tensions and wider geopolitical disruption, there have been significant forces at work causing a negative impact and importantly – negative investor sentiment.

Everyone talks about the fact that there’s a lot of debt in the world and, yes, that is true. In fact, the next crisis may well be due to a debt problem. But just because there are high levels of debt, it doesn’t mean that a crisis is about to happen. It depends also on the purpose of that debt and the level of assets backing it. The serviceability of debt is a key factor to think about and, with interest rates as low as they are, this means that the debt interest burden is also very low for private individuals, corporates and governments. But despite the absence of widespread defaults currently, the overhang of debt may keep a lid on the future rate of economic growth.

At the moment inflation looks well constrained, although it has inched up a bit it is still low, and it’s not causing a problem. Further it’s not factored into consumer pricing expectations to any significant extent at the moment.

Now, however, we are starting to see signs of things potentially starting to ease; maybe even a little positivity in fact. Consider the following four ‘green shoots’ for next year.

Positive 1: Welcome back, stability
Over recent months long term bond rates have pushed up noticeably, and we now have a positive yield-curve back in the US, which attracted a lot of commentary.

Previously, the discussion was all about the yield-curve and its ‘inversion’, and how that was a precursor to an upcoming recession coupled with a slow down in growth. Now we are seeing some signs that perhaps there is growth starting to get a bit of traction with continuing loose monetary policy.

While the manufacturing data has been weak, to date the service data has held up in terms of overall business conditions as well as the US consumer to date. If we start to see a pickup in global manufacturing data and hence a bit of stability coming back there, then if that picks up, it’s clearly a positive moving into 2020.

It doesn’t have to be a strong pick-up, but just enough to show that we’re not heading down this inevitable path of lower and lower interest rates, deeper negative rates and a recession.

Positive 2: US-China tensions easing
Let’s be clear, there’s going to be tension here for some years to come, but tensions look to be easing a little – at least it seems as though they’ve stopped throwing rocks at each other.

That thawing is a positive, and it’s being reflected in more positive sentiment in the market at the moment. But expect volatility as the news ebs and flows.

The economic slowdown in both China and the US is now pressuring them to do a deal of some sort. And, of course, Trump wants to get re-elected next year, and letting the US slide into recession or unemployment is not going to be a smart way to go. Nor will extended periods of low growth aid China’s balancing act.

Positive 3: Brexit solution on the horizon
Brexit’s been rumbling on for almost four years now, and that has caused significant market turmoil at different times. The end seems to be in sight – but who’s to know what that end is? It would look, at the moment, to be heading more to a deal of some form with a new government backing it.

Whether that’s the case or not, the positive will come in the form of stability that a resolution of some description will bring. It will allow UK businesses to start working again with a trading regime, albeit perhaps in a different format, and that will help global growth.

Now it has generally been said that it’s going to cost the British taxpayer a certain amount of money to ‘divorce’ the Euro region. But no one really knows what the effect is going to be until it actually happens. But you would have to think that a resolution here will also be a positive for growth prospects in Europe.

Positive 4: Australian property market stabilising
Closer to home, an economic positive is certainly the continued stabilisation of the housing market. While there’s not widespread growth – although some areas are reporting upturns – the seeming one-way downward traffic has slowed dramatically and/or stopped, which is a positive.

This is a positive for the general consumer, and it also gives some foundation to improving sentiment more broadly. If the value of what is likely to be one of your primary assets – your home – stops declining, and perhaps begins to rise in value, your feeling of wealth, and your general level of confidence increases.

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