This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Jonathan Citrin, founder and managing director at Citrin Group based in Birmingham, Michigan.
The current state of the global economic landscape lends itself to confusion more so than confidence. However, an abundance of noise can yield answers in itself—at least if we step back and listen closely.
For anyone with a proper understanding of how financial markets function, it is not a question of prediction but of mindfulness.
So far this year illustrates this notion: Markets continue to serve as the meeting place for investor emotions, leaving those who comprehend what is truly occurring with the greatest potential to mitigate risk and maximize return.
Any economic snapshot of the world, comprising as many negative attributes as positive ones, exemplifies this need for perspective.
Key Global Economic Indicators
Of the 10 largest economies in the world, only three have year-over-year gross domestic product (GDP) growth of above 2%, and only two have debt-to-GDP ratios under 40%.
In fact, half of these 10 largest economies have debt-to-GDP ratios nearing or above 100%. Broadly, global stocks en masse are down more than 6% during the past 12 months, and 33 countries have inflation of above 8%.
Data from the second-largest economy—China—highlights two major issues: the lack of transparency and slowing growth. Larger trends in China of population aging and youth unemployment seem nearly incurable.
And while 74 countries around the world have a jobless rate of over 10%, easy monetary policy amid fiscal austerity creates a zero-sum game in itself.
Add political uncertainly and the ongoing conflict in Syria to the mix, and one has firm ground to stand on in taking a negative stance on the world’s economic prospects.
World Of Low Interest Rates
Conversely, of the same 10 largest economies in the world, all except one (Germany), have negative government budgets (i.e., fiscal stimulus).
A majority of countries in the world now have positive GDP growth year-over-year, and the cost of living is down over the past one and five years across much of the globe.
By way of interest rates, four different countries have rates that are negative, 21 countries' present rates are at zero and 13 more are below 1%.