Tilney Group CIO Chris Gooding said that during the transition from monetary to fiscal policy, the rise of the consumer in Europe and China should be strong enough to stave off a global recession.
However during his mid-year market outlook presentation, heexplained Tilney had low expectations for global growth over the second half of the year.
Once monetary policy becomes neutralised, earnings growth will become the primary driver of markets, Godding asserted, a worrying trend since earnings revisions have “moved sharply negative,” driven by shortcomings in the materials, energy and healthcare sectors.
China’s credit creation, which has been decelerating since peaking at the backend of 2016, is another reason the group expects less out of equity markets over the second half of the year.
But, what is really needed is “strong fiscal policy to take up the baton of monetary policy,” he said.
While the Chinese have been stepping up fiscal spending to offset the negativity of its credit impulse, “what we really need to see is more in the way of fiscal activity out of the US,” he said.
And despite President Trump’s bravado about injecting $1trn into infrastructure spending and constructing massive border walls, Godding doubts his fiscal policy will get off the ground until 2018 and make an impact until 2019.
However, he thinks a rise in consumer confidence in regions, including Europe and China, will help pick up some of the slack during the passing of the baton from monetary to fiscal policy.
But, he cautions this buoyancy from consumers will be more of a Band-Aid than substitute for fiscal action.
“You are seeing significant improvement in areas like Europe,” indicated Godding.
“That may be enough, but in my mind, given the other negatives in terms of credit impulse in China and the lack of fiscal policy in the US, that improvement in confidence in Europe is enough to keep us steady rather than making strong progress over the second half of the year.”
