The world economy may be the rockiest it’s been since the financial crisis, yet there are reasons to expect the current slowdown will prove short-lived.
Bloomberg Economics, Deutsche Bank AG and Morgan Stanley are among those whose economists reckon the slide will bottom out in this quarter or next before an acceleration later in the year.
“Put the Federal Reserve pause, trade truce, and China stimulus together and we’re looking for a trough in the first quarter and very moderate pick up ahead,” said Tom Orlik, chief economist at Bloomberg Economics.
Central Banks to the Rescue
Led by the Fed, many central banks have either held back on tightening monetary policy or introduced fresh stimulus, soothing investor fears of a slowdown. Fed Chairman Jerome Powell says he and colleagues will be patient on raising interest rates again, while European Central Bank President Mario Draghi has ruled out doing so this year and unveiled a new batch of cheap loans for banks.
Elsewhere, authorities in Australia, Canada and the U.K. are among those to have adopted a wait-and-see approach. China, at its National People’s Congress this month, signaled a willingness to ease monetary and fiscal policies to support expansion.
Easy Money
Having tightened at the end of last year, in part prompting the Fed to rethink the outlook, financial conditions have loosened up. After touching a 2 1/2-year low in December, the Bloomberg U.S. Financial Conditions Index -- which measures the overall level of financial stress in money, bond and equity markets -- has since rebounded.
Reflecting a more positive investor view, there’s also been a rebound in stocks this year. The S&P 500 has gained almost 20 percent from its December low, while the Shanghai Composite is up about 22 percent.
An easing in U.S. dollar strength versus 2018 has also given relief to emerging markets, taking some pressure off policy makers to guard against capital flight. Credit numbers for China and Japan in February were up strongly from a year ago.