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Why fears about a global recession have disappeared far too quickly
- In a matter of months, markets have swung from pessimism about the global economy to optimism. But Europe’s economy remains weak and, with an impending presidential election, it is too soon to say if the US economy is out of the woods
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Sentiment in financial markets is fickle at the best of times. Yet, the speed at which investors have changed their minds about the probability of a global recession in the coming year is striking.
As recently as August, a net 48 per cent of fund managers in Bank of America Merrill Lynch’s survey expected global growth to weaken in the next 12 months, one of the most bearish outlooks since the 2008 financial crisis. By November, a net 6 per cent said they expected growth to improve.
While the survey is just a snapshot of sentiment and canvasses the views of only a small minority of market participants, its findings are a reference point for market commentary and analysis. Last month, Michael Hartnett, one of the authors of the survey, noted: “The bulls are back.”
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There is some evidence to validate the renewed optimism, particularly in the case of America’s economy. In the US, Google searches for the word “recession” – which in August surged to the highest level since the Great Recession of 2008-9, as markets took fright at the intensification of the trade war and signs of a deepening slowdown – have fallen dramatically since the summer.
While this is partly attributable to mounting expectations that Washington and Beijing will strike a partial trade deal – or at least agree to delay new tariffs on about US$160 billion of Chinese imports that are set for December 15 – it also stems from a sense of relief in markets that America’s economy is still in relatively good shape.
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