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Economic growth is still reasonably healthy

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Economic growth is still reasonably healthy

Global economic growth is slowing due to a slowdown in China driven by President Trump’s trade war. This is the conventional wisdom accepted by most and questioned by few.

We do live in somewhat of an echo chamber in which believable explanations for events are propagated through the digital ether with minimal fact-checking. For investors, this makes life difficult – and yet creates opportunity at the same time.

So let’s follow the data. Yes, it is true that global economic growth is slowing. But growth is still reasonably healthy by historical standards. Indeed, much of the slowdown has to do with the very strong global growth that was generated in late 2017.

Screen Shot 2019-02-27 at 10.13.29 am

Source: Macquarie

And in terms of the culprit of the slowdown? The data shows it is the Eurozone, not China, which has accounted for the greatest reduction in its contribution to global economic growth.

Ok, well surely the Eurozone must be slowing due to a deterioration in its exports to China. Again, let’s check the data.

Well, as you can see in the chart below on the left, it is true that European net exports have all but evaporated. Yet, as you can see on the chart on the right, it is the Eurozone’s exports to Turkey, not China, which have deteriorated sharply. Indeed, exports to China have remained healthy through the back-end of 2018.


Screen Shot 2019-02-27 at 10.14.20 am

Source: Macquarie

Global economic growth is slowing because it has been unusually strong in recent years and the Eurozone’s exports to Turkey have recently fallen off a cliff. That is a statement I have heard no commentator make. And yet it is probably closer to the truth than most of the conventional wisdom being propagated.


Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. david klumpp

    Thank you Andrew; always so pleasing to read your insights, challenging the conventional wisdom and dogma. It is why I am happy to nest a large proportion of my international share investments in MGF. Keep up the great work!

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