Nomura

The macroeconomic outlook in a more challenging market environment

  • Our latest macroeconomic views and what they mean for markets in the current climate
  • Is pessimism toward productivity over-stated and does that hold the key to unlocking the market outlook?

With the current market environment, we have become more cautious in our outlook as it relates to growth in developed and emerging economies. Our findings on productivity data highlight some areas to focus in the coming months.

A number of factors have soured the mood of financial markets in recent weeks including a tighter labour market in the US and its implications for the Fed, deleveraging pressures in China, heightened protectionism and political instability. And partly as a result of these headwinds we expect global growth to slow from here. 

We note with this forecast that fiscal policy will not be as active in stimulating the US economy as it has been in recent months. We further note that the Fed will almost certainly continue to lift interest rates in coming months and that other central banks (e.g., the ECB) will be halting their asset purchases.

However, at this stage, we do not expect this global slowdown to be that acute. We believe a sharper slowdown would require more evidence suggesting the world’s major economies – including the eurozone and Japan - have been overheating. In the absence of that evidence it’s hard to see why policymakers would meaningfully derail domestic demand by tightening policy too much in order squeeze out inflation or to unwind financial imbalances. 

The recent drop in oil prices, the likely support to consumption that slightly firmer wage inflation ought to yield, together with still-accommodative fiscal policy in the eurozone (as well as the US) are further reasons for a relatively sanguine cyclical view. From a supply-side perspective, we note too that trend productivity growth could strengthen a little in the period ahead, as still-firm demand incentivises investment in new technologies

Indeed on that last point we think there is a good chance that productivity pessimism has been overstated and that a modest revival in the period ahead is feasible. We note here that new technology takes time to diffuse and unleash broad-based productivity gains and the current wave of new technologies – in combination with one another - offers promise in a very broad array of sectors.

So perhaps the outlook may not be as bleak as some are projecting and this podcast outlines details on why. See full details in our research on Productivity and the Holy Grail and our Global Economic Outlook Monthly

Contributors

  • Kevin Gaynor

    Head of International Research

  • Andy Cates

    Head of Developed Markets Economic Research

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