IMF Says Economic Slowdown Could Become Reality
The global economy could be on the verge of an economic slowdown. Don’t rule out a global recession just yet; the odds are stacking higher by the day. 2019 could be very bad.
There are several indicators and well-known personalities saying that a global economic slowdown could be nearing.
Consider International Monetary Fund (IMF) Chief Christine Lagarde. In a recent speech in Washington D.C., she said, “A year ago, I said, ‘the sun is shining—fix the roof.’ Six months ago, I pointed to clouds of risk on the horizon. Today, some of those risks have begun to materialize.” (Source: “IMF’s Lagarde warns of slowing global growth, possible ‘shock’ from trade dispute,” MarketWatch, October 2, 2018.)
In explaining what’s ahead for the global economy, she used words like “less synchronized,” “shocks,” and “less bright outlook.”
Why listen to the IMF? The IMF works with data from around the globe, and tends to be optimistic. If the IMF is turning pessimistic about the global economy, this is something worth paying attention to.
Economic Data Says a Global Economic Slowdown Could Be Ahead
Economic data is strengthening the argument of a global economic slowdown being ahead.
To give you some perspective, look at the J.P.Morgan Global Manufacturing Purchasing Managers’ Index (PMI). At its core, it tells us how manufacturing across the global economy looks. Remember, if manufacturing activity stalls, it means that demand is diminishing and a global economic slowdown could be nearing.
In September, this index dropped to its lowest level in 22 months!
David Hensley, Director of Global Economic Coordination at J.P.Morgan Chase & Co., said the following:
September PMI data signalled a further growth slowdown in the global manufacturing sector, with rates of expansion in production and new order volumes both easing to two year lows. The trend in new exports remained especially weak, with international trade flows declining for the first time since June 2016.
(Source: “J.P.Morgan Global Manufacturing PMI,” IHS Markit Ltd, October 1, 2018.)
Beyond this, if you start looking at major economies, the data is very loud and clear: things are not so bright. China is slowing down, Japan remains stagnant, the eurozone continues to face troubles (growth in the common currency region is dismal), and the list goes on.
One could say, “Look, the U.S. economy is doing great.” But the U.S. economy alone can’t keep the global economy together. In fact, if the global economy slows down, the U.S. economy will slow down as well.
Why Worry About the Global Economy?
Dear reader, too often, investors think that the global economy doesn’t matter. In reality, it matters a lot.
Consider that in 2017, 43.6% of sales at S&P 500 companies came from outside the United States. That’s $0.43 of every $1.00 in sales. (Source: “S&P 500 2017: Global Sales,” S&P Dow Jones Indices, last accessed October 3, 2018.)
Now, imagine if the global economy faces headwinds and the U.S. economy is miraculously able to avoid a slowdown. The sales and profitability of S&P 500 companies could be severely impacted. What do you think will happen? Their stock prices could drop.
Investors, mark my words: An economic slowdown in the global economy could be the catalyst for the next stock market crash.