From Capital Economics via Domainfax:
The global markets turmoil that took the ASX down to a 2-1/2 year low earlier this month seems over (for now), but even if we get more volatility that’s unlikely to weigh on the real economy, Capital Economics says.
“Over the past 20 years the equity market has been a poor predictor of GDP growth,” chief Australia economist Paul Dales writes in a note.
“While we still believe that GDP growth in both Australia and New Zealand will fail to accelerate this year from last year’s rates of around 2.3 per cent, we don’t believe that the recent turmoil in the financial markets means that something more worrying is around the corner.”
The stability of business confidence in Australia in January despite the fall in equity prices is encouraging too, he adds.
“That said, Australia is hardly firing on all cylinders – retail sales were flat in December and employment fell for a second month in a row, albeit after very strong rises in the previous two months,” Dales notes.
“As such, 2016 is already shaping up to be another disappointing year.”
Perhaps they should consult their own chart, which shows that share market volatility is a very good indicator for movements in GDP (sometimes leading, sometimes concurrent). The point that should be made is that the current bout of turmoil is not yet deep enough to signal “something more worrying is around the corner”.
Other recent bad calls have included:
- China rebounding all of last year;
- describing the commodities bust as “harmless”;
- pulling rate cuts for Australia.
