Via the excellent Damien Boey at Credit Suisse:
Confusing growth outlook
Investors are becoming more concerned about slowing growth. ISM surveys are pointing to stagnation, but not outright recession. Yet the temptation is to extrapolate a recession from a slowdown. Even though our mean forecast for activity growth is not negative, the fact is that uncertainty in the world is elevated. Uncertainty bands around our mean forecast for growth are extremely wide. And a hard landing is now firmly within a reasonable forecasting range. Adding to fears of a hard landing is the fact that uncertainty has directly and negatively affected activity growth in the past. As RBA Governor Lowe has said – when firms feel uncertain, they tend to sit on their hands, rather than commit to long-term capital spending plans, which are costly to reverse. So uncertainty increases the range of possible outcomes, and skews the range slightly towards the downside.