Yet, wage growth has remained at around 2.5%, below the pre-crisis average of 3.5%.US unemployment rate has fallen to 4.1%, well below the Fed's estimated Non-Accelerating Inflation Rate of Unemployment (NAIRU) of 4.6%.Cyclical conditions are now tight in major economies, especially in the US.Historically, inflation comes from high wage growth in a tight labour market during the late stages of the business cycle - a relationship economists describe as the Phillips Curve. On conventional wisdom, he should be making an appearance by now. My "papa bear" is inflation "mama bear" protectionism and "baby bear" financial instability.Let me share with you what I see as the three bears that might return to spoil Goldilocks' happy stupor.
![a goldilocks economy a goldilocks economy](https://i.ytimg.com/vi/tNJqfajLi-M/maxresdefault.jpg)
There are unseen risks out there - that we ignore at our peril.Įach of us will have our own list of three bears.The absence of the bears does not mean they do not exist.This has supported high equity valuations, low bond yields and narrow credit spreads.īut as David Skilling reminded us recently, the Goldilocks story is not complete without the three bears.And financial markets see this happy scenario as self-reinforcing, sustained, and accommodated over multiple years.Many analysts have characterised the current configuration of healthy growth, low inflation, and easy financial conditions as a Goldilocks scenario: a global economy that is chugging along, not too hot, not too cold. This benign inflation environment provides the runway for very gradual monetary policy tightening and credit conditions remaining accommodative for longer.
![a goldilocks economy a goldilocks economy](https://www.eldorrado.com/wp-content/uploads/2015/03/03-06_sm.jpg)
But the slowdown is likely to be measured and the risk of a "hard landing" has narrowed.Ī Goldilocks economy but three grumpy bears may not be far awayĪ striking feature of the global economy is how subdued inflation has been despite broad-based economic expansion and highly accommodative monetary policies.The government is expected to rein in local government spending, tighten curbs on residential property purchases, and seek to reduce excess industrial capacity.Emerging Asia is benefiting from the pick-up in the global electronics cycle, recovery in commodity prices, steady domestic demand, and benign financial conditions.Ĭhina is likely to see a moderation in growth this year but not cool off sharply.The Japanese economy has recorded the longest growth streak in 16 years, with a resurgence in exports and investment.Įmerging market economies - especially in Asia - are benefitting from the positive spill-overs from the advanced economies as well as healthier macro fundamentals.There is still slack in the economy, suggesting that the growth momentum is likely to be sustained. The Eurozone economy was probably the most pleasant surprise of 2017, with a strong recovery in household spending and private investment.The US economy is expected to grow at or above trend, driven by strength in consumption, a healthy labour market, and better prospects for business fixed investment with the enactment of the tax reform package.The advanced economies are leading the charge. The broad-based, geographical spread of the current economic expansion is perhaps the strongest basis for its durability. This reflects both a cyclical upturn as well as a structural uptrend, as products ranging from smartphones to automobiles and home electronics become increasingly chip-intensive.Semiconductor exports surged by 20% in 2017.The global electronics sector is on a strong upswing. The industry trends underlying the pick-up in trade are encouraging. This has arrested a worrying trend since 2011, with global trade growing slower than global GDP.
![a goldilocks economy a goldilocks economy](https://touchstone-global.com/wp-content/uploads/2019/06/Goldilocks-economy.jpg)
![a goldilocks economy a goldilocks economy](https://mediacloud.kiplinger.com/image/private/s--uOGJ6Psx--/v1580344851/slideshow/investing/T052-S001-5-bank-stocks-to-love-in-this-goldilocks-economy/images/intro.jpg)