Global outlook

Speaking in the Barbican last week, Mark Carney set out his perspective on the global economic outlook. ‘While the debate in the United Kingdom has been understandably dominated by Brexit, the world has been otherwise engaged’, stated Carney, as he pointed to the headwinds facing the global economy. Tighter financial conditions, record high global policy uncertainty, and the prospect of the highest US trade tariffs in over 50 years point to challenging conditions ahead. Debt (both public and corporate) was in the spotlight, as Carney noted that: outstanding debt has doubled since GFC, public debt burdens have risen to over 90% of GDP for the first time since WW2, 60% of leverage loans are now cov-lite, and that growth in leveraged loans has been driven by securitisation (déjà vu?). Does this suggest we’ve reached the end of the cycle? Not yet, but it does place the world in a ‘delicate equilibrium’, which continued uncertainty over trade and Brexit could tip. Concerning the forecasting of recessions, Carney pointed to two interesting statements: (1) the IMF has only anticipated 1/6 of over 300 recessions in member countries since 1991, and (2) in the words of the late US economist Paul Samuelson, ‘the stock market has predicted nine of the past five recessions’.