Cushioning The Blow: Key Factors That Could Smooth The Road Ahead For The Global Economy

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On the latest edition of Market Week in Review, Senior Investment Strategist Paul Eitelman and Research Analyst Brian Yadao discussed recent headlines over the global economic slowdown, the shift to a more dovish stance among many central banks and market impacts of the ongoing trade negotiations between China and the U.S.

Global growth slowdown worries continue, but positive signs emerge

Concerns over the global economic slowdown continued to make headlines the week of Feb. 4, Eitelman said, especially across the eurozone, where the European Commission downgraded its growth forecast for the region to 1.3% in 2019. “It’s pretty clear that the global economy slowed over the course of last year,” Eitelman said, “but I think it’s important to focus more on the path forward, which typically is what drives financial markets.”

As for what the road ahead may look like, Eitelman sees some encouraging news. In the U.S., recent business surveys indicate a trend toward stabilization, he said, while January’s glowing jobs report—non-farm payroll additions numbered over 300,000 last month—points to a still red-hot labor market. In addition, at the global level, Eitelman believes there’s been an important policy response that will likely cushion the world’s economy from some of the downside risks. “China, for starters, is stepping up its fiscal stimulus efforts in order to stabilize its economic growth rate at around 6%, while the U.S. Federal Reserve (the Fed) has pretty emphatically paused its interest-rate hiking cycle, leaving rates at a level that’s still slightly accommodative,” he stated.

Are central banks becoming more dovish?

There’s been a sea change toward dovishness among central banks on a global scale, Eitelman said—a shift that began with Fed Chair Jerome Powell’s Jan. 4 speech at the American Economic Association meeting in Atlanta. After strongly hinting at a pause in the Fed’s rate-hiking cycle that day, the central bank followed through by essentially committing to this at its Jan. 29-30 policy meeting, he said. This was followed by the Reserve Bank of Australia shifting its guidance from rate-hike increases to more of a neutral policy setting on Feb. 6, while the Bank of England appeared to strengthen its recent dovish stance at a Feb. 7 meeting, signaling that it will hold interest rates steady for a while.

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