That was the question posed during a recent presentation by Steen Jakobsen, economist at the intelligence unit of The Economist. The event was hosted by the BinckBank at its stylish premises on Marbella’s Golden Mile, where it gives investors and traders using its advanced online platform full training and on-going support.
The seminar, which was well-attended, was opened by Kaspar Huijsman, director of BinckBank in Marbella, before Steen Jakobsen began to answer the question that was burning on everyone’s lips. Naturally, no direct answer was forthcoming, for this is a subject matter too complex to simply answer with a ‘yes’ or ‘no’. There are a manifold of factors that influence the global economy and money markets, not least political and geopolitical ones, but if we put those to one side and assume that the political climate will begin to normalise a little in the near future, then we can look at the core issues affecting the global economic state of health.
The US PMI (Purchasing Managers’ Index) and Chinese Credit Impulse, two key indicators that reflect the level of confidence in the economy – as well as similar British and German indices – are all below 50, in other words, in negative territory. This means that the expectation is that consumption and growth levels will begin to level off and/or drop, less stock is being ordered as a result, and therefore manufacturing is slowing down too. In fact, manufacturing is already down in large parts of the world, while there is still some growth in services, but overall the cards point towards a slowing down of the global economy, and this will normally be reflected in the markets.
A twist in the tale
But before you dive into the bunker, firstly, any slowdown is expected to be a cyclical correction, not a heavy recession, and secondly, there’s a twist in the tale. The twist is that, with the departure of Mario Draghi as President of the ECB (European Central Bank), and his replacement by former IMF head Christine Lagarde, the period of zero and negative interest will come to an end. It has been rumoured that the Germans accepted Lagarde’s appointment on the condition that she begins to raise interest rates – and it is exactly this which could have a positive effect on the economy in the medium term.
Mr. Jakobsen argued that cheap money has benefitted the large corporations and boosted stock market values, while negative interest is beginning to cut normal lenders off from credit opportunities and business development, as well as increasing the already growing disparity in wealth within even developed economies. In other words, money this cheap has stifled yields, made it unattractive for banks to lend and actually reduced economic activity, so a return to a more normal state of affairs could actually facilitate the flow of money in a broader direction and lead to increased activity and growth.
We’ll have to wait and see, but the overall message from this leading economist is that there are enough reasons to be positive, also because in terms of leadership and global management the worst will surely soon be behind us.
Photography: Kevin Horn / Photographer Marbella