Fearful 2016

It is fair to state that it has been an extremely gloomy start to the year from an economic and investing perspective.  

 

However, the reality of this seems to be lacking perspective. We need to look at what is actually happening in the real economy instead of focusing on the headlines.

 

Firstly, let’s consider oil. Oil price decline has in fact been driven by oversupply rather than simply a decline in demand. A decline in demand could be an indicator of longer term recession. But the collapse in the oil price is partly driven because OPEC are operating at maximum output when demand just doesn’t warrant it. This provides a boost to consumers, businesses and oil-importing countries and could be a net positive for the global economy. It is putting more money in consumers’ pockets and this will feed through to increased spending eventually.

 

Secondly, we have China. We know that China’s economy is going through a ‘rebalancing’ away from an exports driven economy to something more diverse. There has been a large decline in capital investment and industrial production but broader data on the rest of the economy is still relatively good. In fact China is actually performing better than the press headlines suggest. 7% economic growth for 2015 is far from a poor performance (2.5 times that of the UK and US).

 

Thirdly, let’s consider economic growth. While financial markets are focused on China and plunging commodities prices, it is important to remember that recent employment data from the US, UK and Europe shows these economies are still growing.

 

So there you go……reality check over and hopefully a little perspective from the 'scary reading seeking headlines'.