The difficulty is in hearing signal through the noise, or to put it another way, separating the economic fact from the electoral fiction.
Taking a look at the litany of lights Cameron mentioned, it is clear that some are flashing a bit brighter than others, but perhaps, like on dashboards of old, while the red light is on, it is impossible to know exactly which part of the engine is actually the problem.
Starting with the eurozone, it is clear that the region is struggling to boost growth to the levels to which it aspires, but whether or not it is teetering on the edge of a black hole is a much harder case to argue.
In fact, as Guy Foster, Brewin Dolphin’s head of research pointed out in the firm’s latest podcast on Friday, the real time indicators and some of the lagging indicators now that you are getting from the eurozone are really beginning to reinforce the tale the firm has been telling all year: “that we expect, and are now receiving, growth in the eurozone which is very, very low, but stable.”
Foster pointed to last week’ better-than-expected numbers from both Germany and France and the news that Greece has finally emerged from its five-year-long recession as evidence that, in general, the eurozone “is not looking like as much of a drag as it has in the past.”
Steven Andrew, a fund manager in M&G’s multi asset team also makes the point that although the current mood is very different to what it was 12 months ago, the change is more to be found in the sentiment and belief at work in markets rather than the facts.
“Certainly, there has been plenty to worry about recently – European or Chinese growth prospects, geopolitical tensions, even the spread of Ebola or unusual weather – and market commentators have variously fixed on these and any number of other issues to try and explain recent aggressive declines across equity markets,” he said.
But, added: “A lot of this sounds quite ‘noisy’, especially as longer term pessimism is not really supported by the facts. Yes, there are still some very real challenges to economic recovery, particularly in the eurozone. However, we actually think it is quite easy to draw a great deal of comfort, even optimism, from looking at some of the broader trends in global indicators.”
According to Andrew, while unemployment remains high in much of the world, there are signs of a nascent recovery within labour markets, especially in the US, which, along with the drop in energy prices, is having an positive effect. Indeed, the fall in energy prices has been, and will likely continue to be a boon for most parts of the world, excluding exporters in the emerging markets.
“This is more important, in our view,” Andrew said, “than factors that often grab attention, such as so-called ‘expert’ forecasts and policy moves. This is because genuine economic growth will most likely come from people feeling positive enough about their own personal finances, so they start spending and investing rather than just paying down debt.”
Cameron’s other warning lights, like Ebola and the crisis in the Ukraine do create a backdrop of instability but, as we have argued in these pages before, such geopolitical events haven’t had as much of an impact on markets as initially thought. Thus, while one should not be too quick to ignore warning lights, as many motorists have found out, usually at the least convenient time and place, a warning light without context is not very useful and, in this case, it seems to be telling us more about the driver than the engine.
