There is a wide divergence of opinion on short- to medium-term economic forecasts. We have the impression that the divergence has not been as great for a long time as it is now. We wonder if there are concrete reasons for these disagreements.
The monetary authorities have recently begun to raise interest rates in unprecedented steps. The declared aim is to contain the ongoing retail price increases. The reactions by the monetary authorities can be interpreted as an indicator of tightened monetary policy.
One could argue that the specific objective is to disentangle the links between the financial sector and the development of the real economy.
The current controversy is once again focused on the strategic role of interest rates and economic activity. Why, you might ask? Both variables provide a link between the financial environment and economic performance.
Recently, the global economy has started losing momentum due to the unacceptable Russian invasion of Ukraine as well as the sharp increase in inflation and also interest rates.
On the one hand, optimism reigns due to the economic growth of the leading nation, the United States, currently characterized by a consumer boom and near full employment.
The current geopolitical upheaval is changing the economic outlook and together with stagflation, caused by price shocks, points to a widely feared economic slowdown.
Russia’s aggression in Ukraine forces us to make the following assessment. It is highly intricate and difficult to foresee any short-to-medium term outcome of the Russian invasion of the Ukraine.
Most of our readers will recall the arguments put forward in the 1970‘s and 1980‘s concerning the world oil tank approaching empty. Then, as now, supply and demand were and are perceived as the reason for price increases.
LET US START WITH A PUZZLE: What do the two rather tricky charts below show? Without specific information one cannot interpret the two-inverse developments. In a sense they stand for the situation we are currently facing, while writing about the outlook for the year just started.
In this EMR, we take a look back at our forecasts and assumptions for 2021, and find that our preference for equities has been rewarded by an acceptable, differential rate of earnings growth.
