The data emerging about the global economy has, in many cases, been more positive so far this year, and risk assets have been boosted as a result, but a range of market participants are warning the outlook is much cloudier than the optimists believe.
Fahad Kamal, chief investment officer at SG Kleinwort Hambros, finds the current global economy to be “slightly muddled” right now, but his base case remains that recession is “likely” in the US, and “possible in Europe.”
He said: “The backward-looking data points seem to be quite positive, while the sentiment surveys which are forward-looking, those seem to be less positive.”
What does the official data suggest so far in 2023?
One hint as to where the global economy may be going, came in the recent IMF economic outlook document published on January 31, according to Kamal.
Much attention was focused on the conclusion this document reached that the UK would be the only major economy to enter recession this year.
But Kamal tells FTAdviser the document also showed the IMF forecasting that around half of all of the economic growth to be generated in the world this year will come from India and China, with the Eurozone and the US, “responsible for only around 10 per cent between them”.
He cautions that there is typically a lag of around 18 months between monetary policy being tightened and its impact being properly felt in the real economy, and notes that it is just 11 months since the first US rate rise took place.
Then there is the latest economic data from the US.
The most recent employment data to emerge from the US, published on February 3 and covering the month of January showed a net half a million new jobs were added, while the data for the previous months was also revised in a way that paints a more positive picture. Those half a million extra jobs were far in excess of the !80,000 extra jobs the market had forecast would be added.
Steven Bell, chief economist at Columbia Threadneedle, says the economic data emerging from the US is “very confusing” right now, but under the bonnet is probably going to be better for bonds than equities.
Bell is a veteran economist and a former economic adviser to the UK Treasury, and says he “wouldn’t blame” any financial adviser for finding the economic data coming out of the US “confusing right now, because to be honest it has confused me.”
Bell says: “There are at least two related areas of confusion. The first is that the labour market is super tight. Whatever angle you look at it from, there is strong demand for workers, but not enough supply of workers. And of course that means higher wages. The latest numbers do show that wage growth slowed a bit but it is still high.”
But Bell said this came in the wake of other data which was less positive, hence the confusion.
He said: “On the other hand, the housing market data, (which was issued on January 26) shows it is in recession, while manufacturing companies have a lot of inventory. I confess to being surprised at the slow down in wage growth, but at 5 per cent it is still quite high.”
