Global outlook: Short-term fragility, long-term balance
Noni Robinson: So, Joe, let’s kick this off with you. Your team has described global growth
as “frustratingly fragile” for some time. Can you tell us what you mean by that?
Joe Davis: Sure. Thanks, Noni. Well, fragile, I think, is appropriate because it really speaks
to, you know, very weak growth. We are very unlikely to see—and we’ve had this view for
some time—very unlikely to see acceleration in any major economy of the world. Fragile
also [is] associated with high volatility at times in the financial markets. I think we’re already
seeing that. And also just characteristic of, in a low-growth world, risk skewed toward the
downside. Some economies [are] in recession, others, I think staving it off. But the risk [of
volatility is] much more than [that of] any acceleration in growth. [That] we’re hard pressed
to see any acceleration in growth in any economy of the world really, I think, encapsulates
our fragile theme.
Meet the speakers
Noni Robinson
Moderator
Frustratingly, we believe is appropriate because, again, we’re seven, eight years removed
from the financial crisis. Policy making across the world has been extremely stimulative,
very aggressive, and yet we still have this low-growth trend environment. So, frustratingly
fragile, I think, is characteristic and I think this sort of volatility and concerns over growth
will persist. I mean, fair, Roger?
Roger Aliaga-Díaz: Yeah, absolutely. And, clearly, I mean, we see these periods of
volatility at turning points, such as Fed tightening and China’s transition with the policy
they’ve implemented. But, for example, in the case of the U.S., we’re talking about the
economy that is stronger within this context of fragility that we’re discussing among the
developed markets.
Joseph Davis, Ph.D.
Vanguard Global
Chief Economist
But, yeah, fair point. I mean, we are not expecting acceleration. If anything, actually, it will
be deceleration back to trend. If you look back at 2015, it was a year in which the U.S.
economy grew above trend.
Joe Davis: Yeah, with the job market, yeah-Roger Aliaga-Díaz: The job market was tightening really well. And, if anything, we expect a
kind of taming down to a normal trend of about 2% growth with the labor market remaining
at the current level of 5% unemployment, if not even a little bit lower. So that’s optimistic
within the context of a very fragile growth economy.
Roger Aliaga-Díaz, Ph.D.
Vanguard Senior
Economist
Joe Davis: With perhaps maybe some growth scares—manufacturing, trade—
Qian Wang: Oh, totally.
Roger Aliaga-Díaz: Absolutely, yeah.
(continued on next page)
Qian Wang, Ph.D.
Vanguard Senior
Economist for Asia
Qian Wang: Yeah, I think, probably, if you think about the world, emerging markets is
probably, at this moment, the weak link, right? I mean, including China, we expect continued
deceleration and many of the emerging markets are in recession already and will continue to
be so in 2016. I think not just from, you know, for this year.
And if you think about them, they [have been] enjoying this kind of Goldilocks’ scenario for
the past decade. You know, they have [had] cheap dollar funding and they have [had] high
commodity prices [that benefitted them] from China. And now, if you think about it, I mean,
U.S. growth is weaker and [the] Fed is tightening and China will continue to slow down and
also rebalance away from the commodity-intensive activities. So that just shows you how
difficult the time[s are for] emerging markets, you know.
Joe Davis: And to Qian and Roger’s points—the one area where we’re fairly distinctive,
relative to other outlooks in the marketplace, is really around our outlook for emerging markets
as well. We don’t necessarily anticipate any sort of cyclical bounce, because their currencies
have fallen to adjust. You know, some would argue lower commodity prices would help those
emerging markets that, you know, would benefit from lower commodity prices.
But, you know, we see a structural sort of adjustment that is needed that, to be fair, many
developed markets had to painfully work through: [The] United States with high consumer
debt, Europe as well. So I think a distinctive episode for the next few years will be that that
gap between emerging market growth and developed market growth will probably be the
smallest that we’ve seen in almost two decades. That will be a different mind-set for investors
and for the markets, and so a lot does rest on the resiliency of major developed markets. We
believe, more likely than not, that that will persist. But it’s because of that turbulence that this
sort of fragility is not going away, because we will not see that acceleration from emerging
markets.
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