Headwinds: Debt, demography & disruptions
While the global economy continues to expand, the pace of growth is considerably less than that seen in previous cycles as debt, demographic and disruptive technology (the three D’s) continue to weigh on private sector spending. This has culminated in a world where inflation has declined to its lowest level in three generations and nominal growth is only half the average level recorded in the three global recessions prior to the GFC (see chart). Corporate revenue growth is anaemic or declining in both the developed and emerging economies, and cost-side savings are limited. A structurally weak expansion means that corporates have a smaller growth pie to feed on and that it is very hard to generate inflation, which has historically accounted for half of global earnings growth since 1950. While the global economy is more likely to expand than contract, the odds of a downturn are considerably higher than normal, and as investors found out in 1987, 1994 and 2011, markets don’t only decline when economic output declines. Read the full analysis: (VIEW LINK)
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