It might turn out that future economic historians will look back at this period and talk instead about The Three Little Pigs - especially the first one, who built his house out of straw. So if it’s fairy tales you like, maybe Goldilocks and the Three Bears isn’t the right one. A year ago, markets (and the Chinese government) were. Chinese growth rates are considerably ahead of its government’s own 2017 growth forecast of ‘around 6.5’. What is actually the Goldilocks economy It is an economy which combines a moderate GDP growth and low inflation. housing crisis.) Another is that if the worst occurs, monetary and fiscal policymakers will be less equipped to support economies - and markets. The Chinese economy grew by 6.9 in the second quarter of 2017, the same rate of growth as the first quarter and the equal fastest pace of expansion since September 2015. (By definition, no one knows where such an event will come from, but for reference, see U.S. One is the potential for a black-swan event to build in an accommodative monetary and fiscal environment. Never mind all those bad loans.Īs welcome as the market recovery in 2019 has been, investors might want to consider at what point optimism ends and wishful thinking begins. 1Q18 GDP maintained solid dynamics despite the slowdown in Central and Eastern European countries and the Eurozone. Reportedly, officials are already preparing to announce another round of stimulus. Poland: Goldilocks economy, GDP above 5 in 1Q. That package was relatively small, by Chinese standards, but it showed the willingness of the government to put aside deleveraging an over-leveraged economy in favour of stabilizing the economy. (It’s already effectively the biggest shareholder in 23 of them.)Īs for China, I don’t know if the Goldilocks story has any meaning there, but the rebound in stocks has at least something to do with the stimulus package Beijing unveiled in January. According to research by Nikkei Asian Review, the Bank of Japan’s exchange-traded fund holdings comprise almost five per cent of market cap on the first section of the Tokyo Stock Exchange, and by 2020 it could become the biggest shareholder in Tokyo-listed companies. Speaking of Japan, the value of stocks and bonds held by its central bank is bigger than the country’s GDP. Federal Reserve chair Jerome Powell has been sounding the alarm about the inability of monetary policy to get inflation near target, but it’s all music to the ears of stock investors, who seem blithely unconcerned about the risk of falling into a Japan-style deflationary spiral. Yet I suspect that what western investors really mean when they talk about a Goldilocks economy is that they expect central bankers to keep interest rates at historic lows - and few seem to worry about why the bankers are doing that (sluggish economic growth). Obviously, not all the market rebound comes down to a sense that Big Brother won’t let anything hurt us. A Goldilocks economy describes an economic environment that is relatively stable and not growing or shrinking too much. We saw this in the mid-to-late 1990s when productivity was hitting its stride and inflation was on a slow and steady decrease. This advertisement has not loaded yet, but your article continues below. GOLDILOCKS is low-inflation and higher-economic growth.
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