Skip to main content

kaletsky60_gopixaGettyImages_bullmarket gopixa/Getty Images

Goldilocks Growth

Sooner or later, some political shock will disrupt the current happy balance of robust global growth and low inflation, as US President Donald Trump’s trade wars and oil sanctions almost did last year. But until such a shock actually happens, investors can sit back and enjoy their porridge just the way they like it.

LONDON – With Wall Street hitting all-time highs and the US economy certain to set a new record next month, it seems a lifetime since the despondency in financial markets at the end of last year. Fears of recession have been completely refuted, and investors who shared the view expressed here in early January – that markets were just going through a bout of irrational panic – have enjoyed the strongest start to a year since 1998.

The market’s roller-coaster behavior is easy to explain, at least in hindsight. Investors were understandably worried by four risks last year: overly aggressive US monetary tightening; escalation of the US-China trade conflict; soaring oil prices (possibly returning to $100 per barrel or higher); and another euro crisis, precipitated by the unprecedented left-right populist coalition that emerged from Italy’s election. By the end of the year, however, all of these risks had subsided: the Fed executed a dovish U-turn, the US-China trade war moved toward a ceasefire, oil prices fell, and Italy resolved its fiscal clash with the European Commission in a fairly innocuous truce.

With all of these problems receding, the surge in equity prices from January onward was understandable, and even predictable. The question now is whether this rebound will lead to a resumption of the bull market or turn out to be only a temporary bounce.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/9AN4VW3;
  1. benami155_ Ilia Yefimovichpicture alliance via Getty Images_netanyahu Ilia Yefimovich/Picture Alliance via Getty Images

    The Last Days of Netanyahu?

    Shlomo Ben-Ami

    In Israel's recent parliamentary election, voters stopped Prime Minister Binyamin Netanyahu's leadership of the country toward xenophobic theocracy. But Israel now faces a period of political deadlock, and it remains to be seen whether Netanyahu really will be politically sidelined.

    2
  2. oneill66_getty images_world Getty Images

    The Return of Fiscal Policy

    Jim O'Neill

    With interest rates at record lows and global growth set to continue decelerating, there has rarely been a better time for governments to invest in infrastructure and other sources of long-term productivity growth. The only question is whether policymakers in Germany and elsewhere will seize the opportunity now staring them in the face.

    1

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions