Ten Reasons to Be Cheerful on Growth in Cruellest Month

There’s no mistake that this week has been a wild one for financial markets, living up to October’s billing as the cruelest month for equities.

Still, as the week ends, some economists are wondering if things are all that bad for the world economy. To cheer investors up, here are some perhaps under-reported, random and possibly foolhardy positive takes on the outlook for global growth.

-- There’s still a lot of liquidity to support demand and stocks. Even before St. Louis Federal Reserve Bank President James Bullard and Bank of England Chief Economist Andrew Haldane signaled support for easy monetary policy for longer, central banks were set to keep interest rates low and balance sheets high into 2015. The European Central Bank still has quantitative easing in its toolkit and the Bank of Japan can boost its asset purchases.

“To say that policy makers have exhausted the options is plain wrong,” said Julian Jessop, chief international economist at Capital Economics Ltd.

-- The U.S.’s fundamentals are in better shape. Total public and private debt as a share of gross domestic product has declined since 2007. Companies are the healthiest for years with the lowest net debt-to-earnings ratio in at least 24 years and record earnings per share.

U.S. Resilience

-- The U.S. economy is showing strength. Just two weeks ago, news of the lowest unemployment rate in six years was spurring stocks higher. Yesterday alone, reports showed production at American factories rebounding, claims for jobless benefits falling to a 14-year low and households holding the most optimistic views in two years.

Today, the Thomson Reuters/University of Michigan preliminary sentiment index unexpectedly rose to the highest level in seven years. JPMorgan Chase & Co. economists say the U.S. is still growing about 3 percent.

-- Even Europe might not be so bad, according to Holger Schmieding, chief economist at Berenberg Bank in London. Germany should avoid recession and Spain, Portugal and Ireland are in “much better shape than they used to be,” he said as he predicted a return to growth in the region early next year. “The less scary -- or less spectacular -- reality usually prevails again after a while.”

-- Global automobile sales increased 0.4 million units in September by JPMorgan’s reckoning, only 0.7 million units short of the all-time record seen last December. European car-sales growth revived last month as registrations gained 6.1 percent from a year earlier, the best performance since March.

Cheaper Oil

-- The price of oil is falling. While that may have disinflationary effects, it could also prop up consumer and corporate spending. Deutsche Bank AG reckons a sustained $10 drop in the price of a barrel of crude could boost global growth by 0.4 percent.

-- China is rebalancing and stable growth may be better than the super-sized double-digit expansions of recent years. Exports increased 15.3 percent from a year earlier in September, the biggest increase since February 2013, providing a counter-balance for the domestic property slump. Also in Asia, Singapore, a bellwether for the global economy because of its trade links, reported its economy expanded more than analysts estimated in the third quarter.

-- In the eyes of Morgan Stanley co-chief economist Joachim Fels, the longer growth remains low and inflation weak, the more the economic expansion can run. The current upswing is now about five years old, around the 5.8 year average of growth periods since 1970.

Buying Time

-- The rising dollar will provide support via exports for the ailing economies of the euro area and Japan. Even with a recent dip, the Bloomberg Dollar Spot Index is up almost 6 percent since the start of July. “The dollar can buy some time for central banks to do the right thing,” says David Bloom, global head of currency strategy at HSBC Holdings Plc.

-- The lower bond yields fall in developed economies, the longer emerging-market economies reliant on outside finance have to reduce their external vulnerabilities, according to Fels.

“As we enter the latter part of the year we expect to see clearer signs that the global economy has bottomed and is accelerating into 2015,” said David Folkerts-Landau, chief economist at Deutsche Bank in London. “While it would be premature to call a market bottom, recent risk aversion appears overblown.”

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