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Crown Agents Macroeconomic & Market Outlook Private & Confidential
November 2018
Crown Agents Macroeconomic & Market Outlook Private & Confidential
- September 2018 was the ten year anniversary of the collapse of Lehman Brothers, which started one of the most severe
recessions since the Great Depression – what has become known as the Great Recession.
- Since then, the global economy has experienced a Great Normalisation – a slow path of normalisation in economic activity,
labour markets, inflation and monetary policy.
- The US is in the vanguard of the normalisation process, due to being much further ahead in the business cycle and having a
positive output gap. Other major economies are not as advanced in their economic normalisation process and so monetary normalisation has much further to go.
- One legacy of the Great Recession has been the massive build-up in global debt, which is likely to be at the centre of the
next phase of the normalisation process.
- For the time being, the normalisation in global economic activity is likely to continue as business sentiment remains fairly
solid (helped in part by fiscal stimulus in the US and China) and consumer confidence is buoyant as a result of low unemployment rates, and gently rising wages and house prices.
- However, despite continued global growth, momentum is likely to moderate as monetary conditions tighten, fiscal policy
fades, trade uncertainty lingers and the business cycle reaches its end-game.
- A fairly benign global macroeconomic environment and consequent continued growth in company earnings is likely to
remain reasonably supportive for equities. However, more volatility can be expected as we enter the latter stages of the business cycle.
- Tighter labour markets and rising wages, as well as increasingly positive output gaps, will continue to put upward pressure
- n inflation and therefore bond yields. Significant fiscal stimulus in the US and the associated increase in the supply of
government bonds, will also be a tailwind for bond yields, as will the normalisation of monetary policy by a number of large central banks.
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