Economic Update

Growth assets have recovered since their low point just before last Christmas, though they have not regained all the ground lost in the final quarter of last year.

Looking ahead, although the outlook for global growth has been marked down a bit, 2019 still looks like another year of global economic expansion. But it could easily be derailed, particularly by any acrimonious trade wars between China and the US or by other risks such as credit market disruptions. The outlook at the moment is consequently hard to call, with some chance of smooth sailing but also a good chance of markets hitting a sharp reef....

Equities have continued to be battered by two big fears for 2019: the potential damage from a U.S.-China trade war and the prospect of a U.S. economic slowdown...

There has also been a slew of other worries, including slower eurozone growth and Brexit. Looking ahead, while all the recent focus has been on downside risks, a broader perspective should allow for the possibility that the long post-GFC economic recovery is still intact, although there is the potential for ill-advised political brinkmanship to derail the cycle....

Equities, overseas and at home, have continued to struggle and are still well below their previous peaks...

Looking ahead, the global economy looks like continuing its already long post-GFC expansion into 2019, which should be supportive for growth assets, but equities remain overdependent on the performance of American shares and the American economy, and there are risks (notably around trade wars and potential mistakes from accidentally overtightening monetary policy) which could derail the outlook...

The New Zealand economy faces at least short-term growth challenges as businesses face higher costs...

The world economy is still growing, which is a generally positive background for risk assets, but investment outcomes have become overdependent on ongoing gains from U.S. equities. The most likely outlook is ongoing global expansion, though trade wars, monetary policy mistakes, problems in some emerging markets, and geopolitical shocks are all real risks to monitor...