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It should not come as much of a surprise that when top financial officials from the world's #2 largest economy China speak about the direction of the global economy, markets and investors listen carefully. This weekend the Commerce Minister of China Gao Hucheng gave such a warning and prognostication. Unlike other investors who are celebrating having dodged the proverbial Brexit bullet, he is taking a much more sobering and sanguine view of the world economy and potential future financial outlook.
Global Economic Outlook Remains Grim
Commerce Minister Gao Hucheng stated Saturday that the global economy and its outlook remain grim even after the painfully slow recovery from the past financial crisis' impacts. His comments are only the latest in a series of expressed concerns about the future and direction of the world economy. These doubts and fears have only worsened since the British voted to depart from the destabilizing European Union in the now infamous Brexit referendum. Concerns are now rife about the possibility of a European or even a global recession.
Gao said that despite the efforts and hard work around the world over the last few years that rescued the global economy from its prior lows, you can still feel the deep and lasting effects of the global financial crisis. Though he did not specifically name the Brexit affair in his speech to the G20 trade ministers meeting in Shanghai on Saturday, he did mention the urgent need for governments of the world's major economies to strive together in order to find the means of revitalizing growth. As Gao so presciently put it, “the revival and growth of the global economy is still lacking in strength. Low levels of global trade and investment have not recovered to their pre-financial crisis levels.”
World Bank Cuts Global Economic Forecast
Commerce Minister Gao is not the only one sounding the warning bells for the state of the world economy these days. The World Bank last month slashed its global economic forecast by more than 17%, expecting the world economy to expand by only 2.4% instead of the prior assessment for 2.9% it had looked for as recently as January. Developing countries are suffering the impacts of lower commodities prices. Their economies count on exporting these commodities at higher stabilized levels in order to thrive. Advanced economies are not in the clear either. They have not managed to gain traction with unimpressive levels of productivity growth and increasingly aging workforces hampering efforts to increase overall economic growth rates. Even China the unstoppable economic juggernaut is suffering from its own problems lately. Trade partners are angered by their steel industry unfairly flooding the international markets with steel exports that are unfairly cheaper. This threatens domestic steel producers and the jobs they provide thousands of workers across Britain, the European Union, and the United States.
More QE to Eventually Focus on Equities
If you missed the Quantitative Easing and feared that it was at last tapering off, you need not worry any longer. Japan's ruling coalition that pioneered the QE concept in Asia has just won a landslide victory this past weekend. Even as the news outlets were announcing his ruling coalition's success in the Upper House of Japan, Prime Minister Shinzo Abe took to the airwaves to acknowledge the vindication of his easy money and pro-growth policies. He then trumpeted his announcement that he would begin yet another round of fiscal stimulus in order to improve the still flailing Japanese economy. Markets liked what they heard, with the Nikkei Stock Index rising around 4% on the news.
The Bank of England is another major central bank gearing up for more financial stimulus. As early as this coming week, BOE Governor Mark Carney and company may slash the key British interest rate from its record low levels of .5% down to .25% in their desperate efforts to steady the British ship and calm down the financial system after the surprise Brexit leave vote victory. The Bank of England will meet to consider the economic data and continuing fallout on Thursday. They are now widely expected to cut the interest rate at this the first monetary policy meeting since the June referendum. Governor Carney has already increased liquidity to banks, and demonstrated that he is more than willing to loosen up monetary policy in the past few weeks.
And well he should be concerned. Business and consumer confidence in the world's fifth largest economy have simultaneously plunged. Strains are evident in the British property funds. The pound itself is trading under $1.30 at a more than 31 year low. The pressure on the BOE governor to deliver the goods could not be higher right now. Look for bonds to continue benefitting from and demonstrating still more negative yields. Next governments will be purchasing equities and possibly even commodities before all of the QE is over and done. The Prices of precious metals like gold and silver will be the ultimate beneficiaries of this highly experimental and eventually likely inflationary monetary policy. Now is as good a time as ever to give gold a serious look for retirement or general portfolio holdings.