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Economic Updates

Read economic updates from Alexander Funds' Chief Economist Stephen Roberts

Economic Roundup - March 2022

Economic Roundup - March 2022

Global economic growth remains strong although concerns about weaker future growth are increasing with the Ukraine war adding to high inflation and central banks under increasing pressure to act more forcefully to contain inflation. Government bond yields are rising fast with bond markets starting to recognise that the prolonged period of disinflation is over, and that inflation will settle longer term at a higher annual rate than it has in recent decades at cycle low points. While business and consumer sentiment are weakening, strong past economic growth still has momentum reinforced by a build-up of household savings through the Covid pandemic that could be spent, as well as greater growth in government spending than is usual in strongly recovering economies.

Growth and Inflation

Growth and Inflation

The war in Ukraine has changed the outlook for economic growth and inflation. To date the escalation of hostilities in Ukraine and the escalation of economic sanctions against Russia, apart from devastating both economies, have curtailed supplies of key commodities such gas, oil, grains and nickel and lifted their prices substantially including those of near substitutes. The war has generated a major supply shock at a time when most major economies are still experiencing bunged up supply chains as well as strong demand fostered by growth in government spending, still easy monetary conditions, low unemployment rates, rising wages and elevated household wealth.

Market Drivers - March 2022

Market Drivers - March 2022

In February volatility in financial markets increased markedly as concerns about high inflation and what central banks might do about it was overlayed by a sharp increase in uncertainty, with the outbreak of a wider war in the Ukraine. Among the issues facing investors, with no clear answers, are how the war will unfold in the Ukraine, Russia, Europe and the world; the near-term impact on inflation and growth prospects; and the impact on the plans of central banks facing potential stresses on the plumbing of the global financial system while at the same time dealing with a new factor adding to inflation.

Economic Roundup - February 2022

Economic Roundup - February 2022

Global economic growth was resilient in the face of the Omicron wave in February, but with high inflation a threat to growth prospects. Central banks are talking tougher in terms of quick removal of unconventional monetary policy support, but most have not started to lift emergency-low official interest rates and when they do start are indicating a slow passage back to normal or neutral interest rate settings. The Omicron wave is fast subsiding reducing one threat to global growth prospects, but the outbreak of war in the Ukraine with its attendant risk of a wider European and global conflict presents risks of lower global growth and higher inflation.

Towards Full Employment

Towards Full Employment

The RBA is aiming to drive Australia’s unemployment rate below 4.0% and believes that the unemployment rate consistent with longer-term non-accelerating inflation holding inside its 2-3% inflation target band is around 3.75%. In effect, a 3.75% unemployment rate constitutes full-employment, where annual wage growth is higher than it is currently, but not high enough to push annual inflation sustainably above target.

Market Drivers - February 2022

Market Drivers - February 2022

In January the focus in financial markets was high inflation and what central banks might do about it. Inflation readings in the US, Europe and Australia matched or were higher than market forecasts. The US Fed responded talking tough policy intentions but still delaying material policy action. The Bank of England hiked 25bps, the second hike in the current cycle, but the base rate is sub 1.00% against British inflation above 5% and still rising. Australia’s Q4 annual inflation rate at 3.5% was above all forecasts but the RBA is waiting for stronger wage growth before hiking the emergency low 0.10% cash rate.

Economic Roundup - January 2022

Economic Roundup - January 2022

High inflation and mostly strong economic growth featured among the world’s major economies during January although immediate economic growth prospects are softer because of the Omicron wave. Also, key central banks, including the US Fed, are promising to act tougher on inflation words not matched by actions so far that have been modest, or non-existent. The threat of higher official interest has unsettled financial markets but has not undermined still strong medium-term growth prospects for the real global economy. Those firm growth prospects may be enhanced as China’s slowing growth rate through 2021 returns to stronger footing helped by more stimulatory policy settings.

A Testing Week Ahead

A Testing Week Ahead

A big risk off week has seen government bond yields rise and share markets fall. The frothiest assets, US tech companies and crypto currencies, saw the biggest falls. The main reason for the sharp falls in financial asset prices last week was further undermining of the rapid economic growth, benign inflation, low interest rate paradigm that previously fostered high valuation of high-risk assets in particular.

Market Drivers - January 2022

Market Drivers - January 2022

Risk assets ended 2021 on a strong note. December saw risk assets rise strongly despite the potentially growth crimping threats from rising Delta and Omicron infection rates. For the most part 2021 and December were influenced by stronger than expected economic activity and faster than expected rise in inflation with governments and central banks barely starting to stem very easy policy settings.