There is good reason to expect a pick-up in global growth over the next 12 months, according to AMP chief economist Shane Oliver.
While Mr Oliver doesn’t deny that fears of rising inequality and protectionism are warranted, he believes that the global economic outlook is improving, driven by the success of conventional and unconventional monetary policies around the world.
“There is good reason to expect the global economic cycle to turn up in the year ahead just as it did after the growth in 2012 and 2016,” Mr Oliver wrote in Oliver’s Insights.
“This should be positive for growth assets like shares.”
Mr Oliver believes that quantitative easing has had positive impacts since its advent, including a fall in unemployment in the eurozone and US and improved wage growth, and that rapid technological innovation and growth in middle income Asia continued to underpin global growth.
He also touched upon increasing amounts of global debt, claiming that it does not necessarily have the catastrophic implications for the economy that some claim.
“All of the rise in debt in developed countries since the GFC has come from public debt and the risk of default here is very low because governments can tax and print money,” Mr Oliver wrote.
“While Modern Monetary Theory has its issues, it does remind us that as long as a government borrows in its own currency and inflation is not a problem, it has more flexibility to provide stimulus than high public debt-to-GDP ratios suggest.”
But Mr Oliver conceded that any improvement in the global outlook hinged on a multitude of geopolitical risks, including the upcoming US election and continuing US-China trade war.
However, those show signs of improving as well – the economic slowdown in both China and the US means that both parties are under pressure to find a resolution. Trump’s chances of re-election depend heavily on his ability to keep the US out of recession and avert a rise in unemployment.
A potential Brexit calamity has also been averted for the time being, but the eventual outcome will depend on that of the UK upcoming elections.
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