Central banks globally have taken steps to support their local economies. But is it enough? Please read about our view of the global economy and financial markets in the third quarter.
What are the implications for global economic growth of trade concerns?
Global economic activities have slowed down. Weakened data from Europe, the United States and China exposes the damage that trade uncertainty can cause on demand for manufactured goods. Other data released during this period revealed economic downturns in Europe, the UK, the US and China.
Weakening export and manufacturing activity pushed inflation below many central banks’ target rates. The United States Federal Reserve Board (the Fed) and the European Central Bank (ECB) have cut their key rates to perk up their local economy. These interest rate cuts helped limit the damage to stock markets. They also favoured some government and corporate bonds (bond prices tend to rise when interest rates fall).
Business investment was also lagging due to weak trade conditions. The economic slowdown generally encourages businesses to reduce spending and investment activities.
Brexit remains a significant shadow in the picture for the UK economy.
The United Kingdom has had to deal with economic risks caused by its departure from the European Union (EU), also known as Brexit. The new English Prime Minister, Boris Johnson, intended to leave the ranks of the European Union, with or without an agreement. This approach had the effect of further undermining the country’s economy. However, shortly after the end of the third quarter, a Brexit deal was reached, designed to allow the UK to achieve its objective during the fourth quarter of 2019.
Canada’s economic growth remains strong.
According to second-quarter gross domestic product (GDP) data, Canada enjoyed solid economic growth. The Bank of Canada has decided to keep its interest rates at the same level, despite the downward moves by other central banks worldwide. While considering that its monetary policy responds well to the circumstances, the Bank of Canada also says it is ready to modify its course somewhat to allay the fears raised by consumer debt, oil price, business investment and commercial uncertainty.
Business investment has shown signs of weakness in Canada. This trend includes spending in the oil and natural gas sector, which fell in the face of the instability demonstrated by oil prices. Indeed, the cost of oil has increased fueled by:
reduced supply from the Organization of the Petroleum Exporting Countries;
drone attacks on a significant oil field in Saudi Arabia;
the new US sanctions imposed on Iran.
Canadian citizens and their debts
Consumer spending has slowed as many Canadians struggle with higher levels of debt. This high indebtedness proved to be all the more problematic considering the rise in interest rates. Since the Canadian economy is closely tied to the United States, any slowdown south of the border could hurt Canadian operations.
Four ways to reduce your debt
Mixed results in world financial markets
Financial market returns were mixed across all regions of the globe. Canada’s financial markets have followed in the footsteps of the United States, which is Canada’s largest trading partner. The problems faced by the United States and a number of its trading partners have caused a great deal of instability in markets globally.
Stock markets bounced back as the Fed cut interest rates and hinted that more cuts could follow. Note, however, that investors, wary of short-term growth prospects, pampered more cautious stocks.
The reversal in the yield of two- and ten-year US Treasuries (meaning that the short-term gain is higher than the long-term one) has become a source of concern for investors. An inverted yield curve is a harbinger of recession from a historical perspective. This inversion now manifests p
