What Should You Do When Economic Uncertainty Builds

Nearly a decade after the worst economic downturn since the Great Depression, economic spirits are reviving,’ writes Bruce Stokes in his Pew Research Report ‘Global Publics More Upbeat About the Economy’.

Many Europeans, Japanese and Americans feel better today about their economies than they did before the financial crisis. More broadly, in 11 of 18 countries from across the globe that were surveyed in both 2016 and 2017, publics feel more positive about their economy than they did a year ago.

Take a look at the graph below. It shows the percentage of people in each nation who believes the current state of their economy is good:

national economies

Source: Pew Research Centre

I can understand India’s upbeat attitude towards their fast growing economy. But I have no idea what the public in Germany or Sweden have to be happy about. Not only are exports declining in Germany and taxes extremely high in Sweden, both countries have struggled to grow their economies. Germany and Sweden have cut interest rates to their lowest levels ever. In Sweden’s case, interest rates are negative.

And yet cheap money has done almost nothing for economic growth. Both nations are struggling to grow their economies by more than 2% annually, as shown below:

national economies

Source: Trading Economics

Australian Economy Problems

Our situation in Australia isn’t all that bad, when compared to Germany or Sweden. However we too, are not without our problems.

On 6 September, the Aussie economy got a little stronger. In the third quarter of 2017, the economy grew 0.8%. It was a nice improvement from 0.3% growth, in the previous quarter.

The data seems to support the Reserve Bank of Australia’s (RBA) view that the economy will grow close to 3% over the coming years. Yet while the economy got stronger, Aussie households were actually worse off for the quarter.

Households spent more. But they also saved a lot less, without earning significantly more. The nation’s household savings rate fell from 5.3% to 4.6%, for the quarter.

I wouldn’t be surprised if many developed economies continue their growth struggles in the near future. While various nations believe their economies are ‘strong’, those same nations are uncertain about the future. Stokes writes:

A median of just 41% believe that a child in their country today will grow up to be better off financially than their parents.

‘…Publics in advanced economies are quite pessimistic about young people’s financial prospects, just 34% believe they will be better off than the current generation. Such despair is particularly strong in Greece, Japan, France, Australia, Canada, Spain and the UK, where roughly seven-in-ten people say today’s children will be worse off.

generational prospects

Source: Pew Research Centre

I suspect if developed economies continue to plod along at their current rate, uncertainty about the future will only build, causing them to spend less, keeping interest rates low. But even in a low interest rate environment, there are plenty of opportunities. Find out what those opportunities are by clicking here.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money


Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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