Economic & Market Outlook – October 2021
In the last few months, we have seen global growth slow down largely due to the potential of inflation across the developed economies, the increasing US debt and the tightening of Chinese internal regulations. This has been compounded by recent economic data which shows that we are now past the peak growth of a few months ago and are now in a different economic position, when growth was positive and accelerating.
Inflationary Pressures
Globally, we are now entering a stage where the future of interest rates is becoming more sensitive to inflation dynamics. With the inflation figures showing a more persistent upward trend across the globe we are seeing central banks setting the scene for a potential interest rate rises in 2022 which is slightly earlier than we anticipated. The critical question we must ask ourselves is, will this inflation be temporary or long lasting?
Furthermore, Covid has; amongst other things, helped to create a supply shortage and has made it more challenging for manufactures to meet their orders and this is not just a UK issue it is a common global theme. This in turn has increased demand within various sectors and has caused increased costs and as such is leading to additional inflationary pressures.
Strangely, unemployment benefits in the US appear to have discouraged workers from rushing back to work; figures have indicated that approx. 50% of employees who lost their jobs were financially better off receiving these benefits rather than working. This has therefore forced employers to entice staff back to work which has led to wage growth in recent months. Now these more generous enhanced benefits are ending, unemployed people should start to return to work and help the recovery of leisure and hospitality sectors which are still struggling.
US Debt
In the US, there is a concern that the Treasury will run out of funds somewhere around the middle of October. However, Congress has voted to extend the debt limit through to early December. The extension has provided the US Government with additional time to resolve this although it is likely some compromises will be needed.
China
Sentiment towards China will likely remain challenged in the near-term as it focuses on creating a more resilient economy, however the longer-term risk-reward looks attractive.
China’s recent policy shift in education, property, healthcare is about creating more equality within their population and whilst this is not new in terms of content, they have changed their implementation. There are issues with the rebalancing of the Chinese economy and large inequality has become more evident within the country (as well as data security issues).
The context is that China is looking to create a more resilient economy – there is an acceptance that lower growth is necessary to reposition the economy. This is not by any means a reason to step away from investing in China; the country is still growing more quickly than many others, and they will still become the largest economy in the world eventually.
Summary
Notwithstanding the headwinds and the volatility that we are likely to encounter in global economies, we will continue to work with you to assess your objectives and ensure you have a well-balanced portfolio that matches your attitude for risk and capacity for loss. We will consider what the impact the current stage in the economic cycle has on your exposure to various assets. Remember, volatility can be partially mitigated by diversifying investments suitably across a broad range of asset classes.
For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]
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The views and opinions contained herein are those of Loughtons Independent Financial Advisers and may not necessarily represent views expressed or reflected in other economic communications, strategies or funds.
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