LESS-BAD: The latest IMF global economic update validates the less-bad macro outlook. They raised their world GDP growth forecast this year by 0.2% to 2.9%. This change in tone comes after three straight forecast cuts. This is driven by a combination of resilient consumers, China’s reopening, and lower inflation. This is the fundamental support to global equities’ strongest start in 15-years. It has also been helped by very low investor expectations. The caveat is that global growth is low vs a long term 3.8% average, with inflation high at 6.6%. And vulnerable with risks skewed to downside. Emerging market is the relative bright spot, and a top equity performer this year. Its GDP growth likely already bottomed last year. Overall, be invested but risk conscious.
SLOWER: Global growth is set to be sharply lower this year as higher interest rates bite. GDP growth is seen falling from last year’s 3.4% rate, to 2.9% this, before a modest rebound to 3.1% next. Developed markets lead down, with their growth rates more than halving. The slowdown is led by commodity exporters and Europe. The UK is an outlier, with its growth forecasts slashed. Even as its top-performing stock market continues to decouple from the local economy. Asia is doing the heavy lifting supporting global growth (see chart), as China re-opens and leads Asia.
RISKS: Global risks remain to the downside, with potentially lower economic growth and higher inflation. IMF highlights six risks, from China’s recovery stalling to geopolitical fragmentation. But only two upside risks, from continued pent-up consumer demand support and faster disinflation. We have also seen a loosening of financial conditions across the world. Markets are now pricing higher terminal interest rates, but speedier later declines. This could be disappointed. Other stability risks could come from low treasury market liquidity (also as the US debt ceiling looms).
All data, figures & charts are valid as of 31/01/2023