Looking on the bright side of the economy

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08/29/2019 | 01:31 pm
Between the escalating trade war, volatile stock markets, the inversion of the yield curve, and troubles in Iran and Hong Kong, itís difficult to remain positive and not to think that a recession is around the corner. But it is also important to look at whatís positive to get a real picture of the economy.


Reading negative news stories everyday can take a toll and convince us that itís all doom and gloom, overlooking positive news and economic data. It seems that a global recession is imminent. But many economists donít think this is true. Sure, it is bound to come at some point due to the cyclical nature of the market, but it could well be that the recession will not hit us until the middle of next year, or later. 

Among good news, there is of course consumer spending in the US. In July, retail sales were up by 0.7%, the strongest increase since March. This mean that US citizen still have confidence in the countryís economy and the health of the job market.

Speaking about the US economy, GDP grew by a robust 2.1% in the second quarter, which is still far off a recession. And on average, the global economy is expected to grow by 3.2 range in 2019, according to the IMF.

Employment is also doing pretty well, with most economies showing improvements. For example, 71.1 % of the US working population was employed in Q2 19, compared to 70.6 percent a year ago. In Japan, 77.6 % in Q2 compared to 76.8 percent a year ago. And the trend is replicated in many countries:
 
 
Employment rate of each country compared with the OECD average (in black). Source : OECD Labour markets statistics

In addition, growth in real household income per capita, which provides a better picture of changes in householdsí economic well-being than real GDP growth per capita, accelerated to 0.6% in the OECD area in the first quarter of 2019, compared with 0.3% in the fourth quarter of 2018.
 
 
Real household income per capita and real GDP per capita. Percentage change on the previous quarter, seasonally adjusted data. Source : OECD

There is also some progress in terms of eradicating poverty globally. A World Bank report published at the end of last year highlights the "remarkable and unprecedented progress" against poverty in the world over the past quarter century. "The number of people living in poverty stood at 736 million in 2015, compared to nearly 2 billion in 1990". In that year, 36% of the world's population lived in poverty, defined internationally as an income of less than $1.90 per day. By 2015, this proportion had dropped to 10%.

And letís not forget emerging countries. According to IMF data, they are expected to grow at 4.1 percent in 2019, rising to 4.7 percent in 2020. The forecasts for 2019 and 2020 are 0.3 and 0.1 percentage point lower, respectively, than in April, but it is still a robust growth that will contribute to the global economy. Emerging and developing Asia is expected to grow at 6.2 percent in 2019Ė20, despite the escalating tariffs in China, and by 6.0 percent in 2020. Indiaís economy is even set to grow at 7.0 percent in 2019, picking up to 7.2 percent in 2020.

The bottom line is that all the negative headlines and market volatility are hiding the positive. A recession will come, but when is still anyoneís guess and it may not be until next year. In the meantime, stock markets could be back to a bullish trend.
Romain Fournier
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