Insight

Global Economic Update

October 16, 2019

We were pleased to partner with UBS Wealth Management to present a Global Economic Update by Paul Donovan, Global Wealth Management Chief Economist for UBS.

One of the first challenges in trying to understand the economy today is that the quality of economic data is not what it was. Most economic data was designed in the 1930s. The way economic data views the world is not well suited to the changes that are happening today. Patterns of employment are changing. The rise of self-employment, home working, and having multiple jobs confuses data. The difference between investment spending and consumer spending has become blurred. GDP measured a manufacturing based economy very well – it was, after all, designed to help maximise wartime production. It is becoming less and less useful, however, in a more service sector based economy.

The result is that we have to be careful in being too precise about economies. The broad trends are probably correct, but the details are almost certainly not.   There are, nonetheless, trends that we see emerging today. The trend of ever more trade taxes from the United States has upset the global trade system. Trade taxes hurt listed companies more than they hurt the wider economy, because the overwhelming majority of global trade is conducted inside companies (moving goods from subsidiary to subsidiary).

Trade taxes are also more damaging to investment than to the consumer. This is because investment goods form a disproportionately large part of global trade. Trade taxes are thus a disproportionate tax on investment. It is also because the uncertainty around global supply chains seems to be causing companies to rethink their investment plans. So far, this has not really been noticed by the consumer. The investment slowdown is causing a global economic slowdown. Only if this spills over into labour markets and the consumer would a recession be threatened.

More on these and other topics can be found at ubs.com/pauldonovan – where you can also sign up for the daily podcast covering the key economic issues.

Paul Donovan spoke at Bailey Fisher’s Leadership Series event in partnership with UBS Wealth Management.  The event was attended by CFOs from UK-based growth technology businesses.

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