Global outlook spring 2020

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Stock markets around the world are currently
suffering a major period of volatility as a
result of the COVID-19 outbreak. We are in
unchartered territory. At this point its
impossible to pinpoint the full economic impact
as activity grinds to a halt in several sectors.
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The IMF (International Monetary Fund) have issued
a series of measured responses to the outbreak,
one of which cites Quantifying the economic
impact is complex, giving rise to significant
uncertainty about the economic outlook and the
associated downside risks. Such an abrupt rise in
uncertainty can put both economic growth and
financial stability at risk. In addition
to targeted economic policies and fiscal
measures, the right monetary and financial
stability policies will be vital to help buttress
the global economy. Central banks are moving to
stabilise the financial system by ensuring that
there is enough liquidity to keep banks and
financial markets functioning, thereby supporting
businesses and households during this current
downturn. The IMF also stands ready to lend up
to 1tn as it encourages governments to protect
their economies from COVID-19. The IMF also
announced it would make available 50bn to
emerging and developing economies through various
emergency financing programmes.
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Europe The continent has so far been very badly
impacted by the outbreak, with Italy at the
epicentre. COVID-19 fears have fuelled a sharp
sell-off in equity markets as EU leaders move to
adopt a unified fiscal response. Many countries
are now on lockdown. Before the outbreak, data
for the 19-country Eurozone revealed a lacklustre
end to 2019, with growth across the whole bloc
slowing almost to a halt after the French and
Italian economies unexpectedly contracted during
the final quarter of last year. The German
economy also endured another weak performance in
the OctoberDecember period although Europes
largest economy did see some expansion, growth
was rounded down to 0.0 with the sluggish
performance reflecting a fall in exports.
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Switzerland Latest statistics released at the
start of March indicated the Swiss economy should
gain some momentum this year, supported by solid
domestic demand. However, threats to this outlook
include a resurgence of trade tensions, COVID-19
uncertainty and strained Swiss-EU relations. GDP
projections predict growth of 1.2 in 2020 and
1.3 in 2021. In January, retail sales declined
and manufacturing PMI dipped. Weaker foreign
demand prospects can be linked to the outbreak.
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UK On Budget day in the UK, both the
Chancellor, Rishi Sunak, and the outgoing
Chairman of the Bank of England (BoE), Mark
Carney, were keen to emphasise the temporary
nature of the economic downturn. The newly
appointed Chancellor also stressed his firm
belief in the British economy to weather the
storm. Taking an empathetic tone, he reassured
the British public that we will get through this
together and called on all parties across the
House to support his 30bn fiscal stimulus,
including welfare and business support, to keep
this country and our people healthy and
financially secure. Further announcements have
bolstered this initial pledge of support. On the
morning of the Budget, the BoE had announced an
emergency cut in interest rates to support the
economy amid the COVID-19 outbreak. The BoE base
rate was reduced from 0.75 to 0.25, returning
it to its lowest level in history. The BoE said
it would also free up billions of pounds of extra
lending to help banks support firms. Mr Sunak
also revealed that, not taking into account the
impact of COVID-19, the British economy is
forecast to grow 1.1 this year, then 1.8 in
2021-22, 1.5 in 2022-23 and 1.3 in 2023-24,
while inflation is forecast to be 1.4 this year,
increasing to 1.8 in 2021-2022. Borrowing as a
percentage of GDP will be 2.1 this year, rising
to 2.4 in 2020-21 and 2.8 in 2021-22. UK
markets have been badly impacted. The UK
government has announced a set of financial
measures to help the UK economy tackle the impact
of the virus, which will hopefully bring some
confidence back to financial markets.
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US In the US, the Federal Reserve announced an
emergency rate cut of 50 basis points in early
March, followed by a further cut of 100 basis
points on March 15. The Fed have also announced
several other measures. Which include a new
quantitative easing (QE) program of at least
700bn commencing 16 March. Supply chain issues
are coming to the fore, particularly for
technology companies, as highlighted by a warning
from Apple that it will fail to meet its
quarterly revenue target as factories in China
are closed. Mastercard, Microsoft and PayPal also
issued similar supply chain related
warnings. Prior to the outbreak, GDP figures
released by the Bureau of Economic Analysis
showed that US growth remained at a respectable
level. The worlds largest economy grew at an
annualised pace of 2.1 during Q4 2019, identical
to the rate recorded during the preceding quarter
and exactly in line with analysts expectations.
Although the US economy saw growth at a
reasonable rate, the level remains significantly
below President Trumps lofty prediction of at
least 3 annual growth made after his tax cut
announcement in 2017. Economists believe the
latest statistics confirm a broader trend towards
steady but decelerating growth rates that has
been evident over the past year.
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Asia and emerging market equities The Chinese
economy virtually came to a standstill in
February, despite this equity markets proved
resilient. In general, Asian equity markets have
weakened as the virus accelerated, raising
concerns over the potential impact on global
economic growth. Interest rates have been cut in
in several emerging market countries. Preliminary
GDP estimates released by the Japanese government
show that Japans economy shrank by 1.6 during
Q4 2019, the countrys largest quarterly
contraction in five years. While official data
released by the National Bureau of Statistics
also confirmed Chinas rate of growth remains on
a downward trajectory.
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Commodities Gold is currently trading at around
1,516 a troy ounce. The outbreak has impacted
demand for raw materials. A combination of
slowing global growth, investors reducing
exposure to risk and accommodative monetary
policy could provide a level of support to the
gold price long-term. A host of stimulus measures
also provided some support to the precious metal.
Brent crude is currently trading at around 29 a
barrel. Worldwide, refineries are slowing output
and contemplating extensive maintenance due to
travel restrictions put in place in response to
the pandemic. Gasoline demand in the US, the
worlds largest oil consumer, is falling.
International flights are being grounded
worldwide, removing jet fuel demand.
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Looking ahead Although markets do not respond
well to periods of uncertainty, what is certain
is that volatility goes hand in hand with stock
market investment and while market movements can
be concerning, we have all become much better at
expecting the unexpected, experience has taught
us that. Instead of being overly worried by
volatility, the best strategy is to be prepared.
A well-defined investment plan, tailored to your
objectives, in line with your attitude to risk,
that takes into account your financial situation,
can help you weather short-term market
fluctuations. Market volatility is a timely
reminder to keep your investments under regular
review thats what we do. We aim to manage the
inherent volatility of markets, so your savings
have the best chance of growing for the future
without giving you sleepless nights and whilst
ensuring you arent taking too much, or too
little risk, with your money.
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