05 Jun 2019
David J. Eiswert , Portfolio Manager
Our outlook for the global economy is informed by a view that the world continues to pass through an ongoing cycle of Crisis, Response, Improvement and Complacency. The world is now moving out of stimulus-driven Complacency and back into the Crisis and Response phases.
Low probability of a near-term recession
Coming into 2019, we were of the view that we had passed “peak growth” in economic and earnings terms that had been fueled by U.S. corporate tax cuts and fiscal stimulus globally and that we would have a slower-growth year. While the term Crisis is too strong to describe what is actually happening in the U.S. with too much debt, too much oil, and too much automation, GDP growth is indeed decelerating. However, we believe the probability of a near-term recession remains low.
China has been in the Crisis part of the cycle for a couple of quarters already, driven by falling GDP growth and the impact of a potential trade war. This fade into Crisis is somewhat inevitable given the intense period of Chinese, and more recently U.S., stimulus that is now rolling off.
Authorities undertake measures to stimulate growth
China is leading the way into Response by acting to support the growth level by re-stimulating through various government measures. The U.S. has followed suit, with the Federal Reserve’s recent pivot to a more dovish stance. If a trade agreement between the U.S. and China is reached, we think Chinese business confidence will improve and the economy should start to stabilise. Such a scenario would also be positive for Europe, as the region benefits disproportionately from Chinese growth.
Benefits of being on the right side of change
Innovation is unleashing powerful secular forces that are generating new business models and creating significant disruption. It is getting more and more valuable in a low-growth world to own companies that are disrupting industries and gaining market share, even if they trade at a premium. With disruption occurring across nearly every industry, being on the right side of change, and Improvement, will be paramount for investors given the dispersion of outcomes between winners and losers.
IMPORTANT INFORMATION
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.