Invest
There’s something very wrong with the economy and it’s not just the coronavirus
Invest
There’s something very wrong with the economy and it’s not just the coronavirus
While COVID-19 has received more than its fair share of the blame for weak economic numbers, there are underlying forces the virus is hiding, suggests a fund manager.
There’s something very wrong with the economy and it’s not just the coronavirus
While COVID-19 has received more than its fair share of the blame for weak economic numbers, there are underlying forces the virus is hiding, suggests a fund manager.
According to Franklin Templeton’s director of Australian fixed income, Andrew Canobi, it is consumer spending stopped in late 2019 which will force the central bank to deliver monetary stimulus, not the coronavirus.
“The novel coronavirus, COVID-19, has received more than its share of the blame for a range of market moves, and it is true that the fallout from this on growth will likely be severe and far exceed the overly optimistic utterances of central bankers and government alike made in recent weeks,” Mr Canobi said.
While the impact has been felt on the sharemarket, with over $100 billion being wiped off the sharemarket, Mr Canobi argues there are real problems in the economy that the bond market is showing.
“The bond market always tells a story. The general level of term bond yields is communicating a somber message in terms of potential growth and inflation,” Mr Canobi continued.
“It is doing this because the marginal dollar is being saved rather than borrowed, which remains disinflationary. In an over-levered global economy, the price of money continues to have little impact on demand to borrow and invest or consume, even as extreme, even negative yields, abound.”
Due to this, the fund manager believes monetary policy will be used to stimulate the economy, but it will not be because of the coronavirus that the central bank will act.
This is after claims by the Australian government that its surplus which it previously promised may not happen as the impact of the coronavirus plagues the Australian economy.
“A key reason why monetary policy lacks its traditional potency is not because it is ineffective per se but because its role has changed. Its ability to bring forward future demand from the future to the present is limited if future demand is already exhausted. So, its role is not to stimulate demand to borrow, but to expedite deleveraging in order to shorten the balance sheet repair process,” Mr Canobi said.
He concluded: “While hopes and expectations of any ‘V-shaped’ bounceback from the COVID-19 epidemic are increasingly being fed through the shredder, the lingering disinflationary impulse remains in place for now, which is the real reason why we should see more monetary stimulus in 2020.”
nestegg has previously discussed how a leap year could save the Australian economy.
RELATED ARTICLES
About the author
About the author
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
Economy
Co-ops and mutuals boost revenue to $43.2 billion despite economic challenges
Australia's top 100 co-operative and mutual businesses have posted a record performance in the 2023 financial year, growing total revenue by 16.1 percent to $43.2 billion. Read more
Economy
Fed decision set to pressure emerging market central banks to hike rates
The Federal Reserve's expected decision to maintain US interest rates at a two-decade high at its sixth consecutive meeting on Wednesday is set to put pressure on emerging market central banks to hike ...Read more
Economy
Fed keeps rates steady, signals higher for longer amid elevated inflation
The Federal Reserve kept interest rates unchanged at its May meeting and signaled that rates are likely to stay higher for longer given elevated inflation in the first quarter, while also announcing a ...Read more
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
Economy
Co-ops and mutuals boost revenue to $43.2 billion despite economic challenges
Australia's top 100 co-operative and mutual businesses have posted a record performance in the 2023 financial year, growing total revenue by 16.1 percent to $43.2 billion. Read more
Economy
Fed decision set to pressure emerging market central banks to hike rates
The Federal Reserve's expected decision to maintain US interest rates at a two-decade high at its sixth consecutive meeting on Wednesday is set to put pressure on emerging market central banks to hike ...Read more
Economy
Fed keeps rates steady, signals higher for longer amid elevated inflation
The Federal Reserve kept interest rates unchanged at its May meeting and signaled that rates are likely to stay higher for longer given elevated inflation in the first quarter, while also announcing a ...Read more
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
