Inflation scare and growth slide
As I’ve said, the chief investment office holds to the view that the goods times will continue to gradually fade into next year with the risk of a more meaningful slowdown rising. As alluded to above, there are two factors that could accelerate this sooner than we expect.
If US wages grow as fast as our indicators suggest they will – to 3.5 per cent growth by year’s end, and more than 4 per cent by the middle of next year – then that will add further fuel to the already hot US economy.
In this scenario, I’d expect one key measure of US inflation, the personal consumption expenditure index, to jump by more than 2 per cent over the next few quarters, pushing the US central bank to tighten its policies more rapidly than currently anticipated by markets.
The second factor is China, which remains a meaningful threat to global growth. As the world’s second-largest economy, it is crucial to the stability and growth prospects of the world economy. But the Sino economy is slowing and all signs indicate that will continue. While China is attempting to implement policies to moderate that decline, its slowdown is already working against global growth.
While these forces are not yet powerful enough to push the global economy out of its growth phase, which is already in an extended late cycle, stresses are beginning to emerge.
Balancing these forces, ANZ’s chief investment office is holding its ‘neutral’ position on most classes of assets. Although the likelihood is that a more defensive position will need to be adopted.