Global economic growth is weakening, an outcome that looks set to see heightened financial market volatility and an increasingly faltering risk appetite over the coming months.
That’s the view of ANZ Bank’s FX Strategy team, lead by Daniel Been, who say that the potential catalysts for a selloff across markets are “multiplying”.
“With signs that global growth is actually starting to moderate, caution is warranted,” says ANZ, pointing to the chart below revealing its Global Lead Index (GLI) — a lead indicator on global industrial production — has weakened sharply over the past month thanks to a sharp deceleration in the US, euro area and China.
“Any indication that Q1 growth will disappoint could, in our view, be a trigger for a broader pick-up in volatility and a more sustained deterioration in financial conditions, especially at a time when the liquidity tide is ebbing.”
ANZ says financial market volatility, to date, has been largely contained to stocks, meaning the implications for the broader economy have remained limited to this point.
However, if global growth has has already topped out, it suggests there could be spillover into other asset classes, especially those closely tied to the performance of the global economy.