Economists and policymakers continue to debate the technical issues, such as quantitative easing of monetary policy, negative interest rates and other unorthodox measures.
But behind these official downgrades in aggregate growth, more detail is starting to emerge of the factors behind it and where the impacts are hitting hardest. And whether there’s any blue sky appearing.
The latest Bank for International Settlements (BIS) review, for the December quarter and year, showed the slowdown in cross-border banking activity that began in early 2015 broadened in the final quarter of the year.
“Whereas in Q3 2015 this slowdown was most pronounced for interbank activity and lending to emerging market economies (EMEs), in Q4 2015 it spread across sectors, major currencies and regions,” the BIS said.
“Cross-border bank credit to EMEs in aggregate contracted by 8 per cent in the year to end-December 2015, the largest annual rate of contraction since 2009. Claims on China fell by $US114 billion, the largest drop during the quarter.”
This is not just a story about banks, it is a story about the economies to which they lend.
But equally such data show what has happened. For a prospective outlook, American Express surveys global chief financial officers in its annual American Express/CFO Global Business and Spending Monitor.
According to the recent survey, finance executives overall remain cautious around spending and investment decisions due to global economic and political uncertainty. But not without hope.
That echoes IMF and other data however the underlying story is more nuanced and regionally disparate.
According to the survey, in aggregate “caution is not necessarily translating into lower spending and investment. It is motivating companies to reduce exposure by focusing more on domestic markets and increasing investment in risk management and security”.
The United States is particularly buoyant with three quarters of respondents (75 per cent) reporting revenue growth over the past year, the highest of any country. In addition, at 73 per cent expect continued economic expansion next year – again the most optimistic.
That contrasted with Latin America where overall growth was anaemic although respondents were still optimistic and planning to spend and invest.
More concerning was Asia, still the engine room of growth and one – relatively – healthy region in the IMF outlook.
Yet according to the Amex survey, respondents from the Asia/Australia region “continue a multi-year trend of lowering expectations for their economies - primarily due to declines in China and Hong Kong.”
The outlook in Europe is neither here nor there.
The insight from the Amex survey into cross-border lending is telling. The most common response from CFOs to uncertainty will be to pull back and focus on domestic markets. In answer to the question “over the next year, is economic or political uncertainty, whether in your country or in other countries, likely to cause your company to take any of the following actions?” the most common response, from 41 per cent, was “increase our focus on domestic markets”.
That was followed by “increase our investment in risk management or security” (39 per cent) and “redirect planned investments from some countries to different countries” (31 per cent).