Introduction
The news media are full of stories that global growth is slowing. And this fear is contributing to the volatility and decline is stock markets worldwide. In what follows, the growth issue examined and conclusions are reached over what is really worrying.
Regional Growth
Table 1 provides projected GDP growth rates for through 2020 by a consensus of experts assembled by FocusEconomics. Global growth will fall off in 2019 and 2020 but not by much. And certainly a global growth rate 3% is quite healthy. It also appears that the coming years, the emerging nations of Asia, Central and Eastern Europe and Africa will provide the global stimulus. Things are not projected to go well in the Eurozone with Brexit uncertainties hanging over the future.
Table 1. – Projected GDP Growth Rates by Region
Source: FocusEconomics
Table 2 provides data on countries projected to grow most rapidly in 2019. As one might expect, Africa and Asia dominate.
Table 2. – Countries Projected to Grow Most Rapidly in 2019
Source: FocusEconomics
Table 3 provides growth data on the largest countries in the world. These are the ones that will receive the bulk of new investments in 2019. One wonders about the projected sharp decline for the US in 2020. In all likelihood, this is largely a reflection of uncertainty discussed further below.
Table 3. – Projected Growth Rates of the Largest Countries
Source: FocusEconomics
Is Slowing Growth Worldwide Or Other Uncertainties Causing Stock Market Weakness?
The links between the rate of economic growth, economic strength, and the stock market’s performance are is not at all clear cut. Consider the US. US GDP growth is projected to fall from 2.9% in 2018 to 2.5% in 2019. This is hardly a sign of a weakening US economy. Trump’s tax cut was intended to stimulate the economy at a time when the economy was at full employment. It did. The drop in the projected 2019 growth rate is attributable to the effects of the tax cut wearing off. However, the US economy is still strong and the country remains at full employment.
Numerous worries/uncertainties are plaguing the markets. They include:
- What will Trump do next?
- Trump’s “war” with the Fed;
- What the Mueller report uncover;
- Whether the President remain in office for his entire term;
- The ongoing trade negotiations with China;
- When will the US government open again and what US immigration policies be adopted;
- What will happen in the Middle East as Trump withdraws troops, and
- The Brexit outcome.
Conclusions and Investment Strategies
There is nothing wrong with the American economy. The stock market sell-offs and increased volatility stem from the uncertainties listed above concerning Trump’s actions and how the US Congress will react to them. Some might work out well. Others will not. It is time for defensive investment strategies: companies paying healthy dividends with low payout ratios.