If the stock exchanges are preparing to dance, it’s the ability to withstand panic that separates the good ones from the bad.
Is there even a cause for panic?
The answer is no.
What is true about crisis forecasts?
For now, as often happens in finance, nothing concrete has actually happened: there have been only signals, analysis and forecasts.
The most important of all these came from the International Monetary Fund (the body charged with overseeing the economies of 189 countries). The institute's economic managers have revised down the growth forecasts for 2019, and for 2020. In particular, global GDP is expected to grow by only 3% this year (previous estimates were 3.2%), while for 2020 a growth of 3.4% is expected instead of 3.5%.
A synchronised slowdown
Among the causes of what the IMF has called "synchronised slowdown", which means widespread on a global scale (as happens in an interconnected economy), some are, as very often in finance, intangible, to say the least. Others, however, are less so, and as such they can be corrected, adjusted, arranged, or avoided.
One of the IMFs biggest concerns is the ongoing trade war between the US and China. They estimate that the impact of this alone will alter the GDP in 2020 by a huge 0.8%.
The fact that two of the world's leading economies (one, China, is the largest exporter, the other, the US, the biggest importer) have decided to stop their trade relations had, and could still have huge repercussions on trade around the world. The manufacturing and agricultural sectors in particular will be the hardest hit (as the USA produces soy and China imports it), as well as the services sector (which is closely linked to manufacturing production).
Reasons to sleep peacefully
In this climate you may choose to exercise caution yes, but not panic. It is the IMF itself that, in its analysis, has underlined how the economy has been relatively secured by the monetary policies of the European Central Bank (the quantitative easing of Mario Draghi) and by that of the US Federal Reserve.
This indicates a big difference compared to the climate surrounding the 2008 crisis, when the stock market collapse was accompanied by a period of austerity and lack of liquidity. Now things are different, central banks have begun to circulate liquid assets again so as to secure states and citizens. Without the liquidity provided by the central banks, in fact, growth estimates would have been reduced by a further 0.5% both this year and next.
What’s still to come?
Although central banks can do a lot, they can't do everything, and this is because world finance depends very much on the economic policy decisions of individual countries. It’s with this in mind that the following statement from Gita Gopinath, the IMF’s chief economist, must be read: "The global prospects remain uncertain. It is therefore important that the political authorities take action to reduce uncertainty and cooperate to cool tensions".
The hope of the IMF (and all investors)
In light of this data it is quite clear that the eyes of the world are on the US President Donald Trump and on the Chinese General Secretary, XI Jinping. Recently, there have been signs of relaxation between the two. In particular, a few weeks ago an agreement was drawn up (to be signed in the next few days) which plans to relax the tightening of duties. According to the draft agreement, China will resume importing agricultural raw materials (in particular soy) and the US, in exchange, will suspend the increase in tariffs.
If things go well, or if, as one hopes, China and the United States should come to suspend hostilities by rewriting exchange trade agreements, things for the world economy (and by extension, us) could resume their comforting upward curve.