Positive factors for the economy
Among the positive factors for the global economy, Henrik Drusebjerg mentions declining fears of an escalation in the trade war between the US and China, which previously weighed heavily on business sentiment. In addition, robust labour markets, rising wages and low interest rates are helping to ensure solid private consumption, though the coronavirus could cause some consumers to stay at home and so curtail spending for a while.
“Other important factors are limited inflation and moderate economic growth. These factors continue to provide central banks with the leeway to support the economy through accommodative monetary policy – i.e. low interest rates and bond purchases – without fear of the economy overheating or runaway inflation,” explains Henrik Drusebjerg.Need for economic stimulation
The recent spread of the virus to other parts of the world has increased the risk that we will experience a longer period of slowing economic growth than previously assumed. According to the chief strategist, this will increase the need for the authorities, including the central banks, to do their bit to stimulate the economy in the meantime.
“We have already seen the authorities take action in China, while the US central bank announced on Friday it would act to support the economy via monetary policy easing,” says Henrik Drusebjerg.
Key risks we are monitoring
- Political risk could flare up again: Despite the phase 1 trade agreement between the US and China, there is still a long way to go to reach a more comprehensive trade deal, just as a hard Brexit remains a real possibility when the current transition period expires.
- Coronavirus outbreak may be prolonged: Should the negative effects of the virus prove greater or more long-lasting than expected, the stabilisation of the global economy could be threatened.
- Disappointing economic data: The coronavirus outbreak may result in a period of disappointing economic data that increases investor concerns about whether the stabilisation of the economy is on the right track.