Ron Derby
IF you had been in some sort of cryogenic sleep for most of the past decade and the first thing you read this morning was a report about the local market reaching yet another high‚ you would probably believe the South African and global economy was in a healthy space.
But it couldn't be further from the truth. For the economic data released this year has been a mixed bag‚ with some reports bringing in hope of better prospects and others reminding of just how tenuous the situation on the ground remains.
Even the most optimistic of economist has too many potential setbacks ahead to make a confident call on the economy.
Yet equity markets continue to rally‚ despite the uncertainty and apprehension across the world. This week it's the JSE all-share index.
Last week we were all abuzz about the Dow Jones reaching levels not seen since 2007‚ before the economic crisis.
But we are nowhere closer to a point where we can confidently say we are over the hangover from the recent global recession. The surge in equities covers up the real frailties of the global economy.
In no way are stock markets being boosted by the global economy. Central banks are doing the stimulating. Low interest rates in developed markets have investors searching for higher yields.
"Rather than reflecting confidence‚ loose financial conditions are being generated artificially by central banks in an attempt to buoy sentiment and encourage spending‚" a recent report from London-based Barclays said.
"The monetary palliatives are having the desired financial effects‚ but signs of success in the real economy remain patchy‚ and the prevailing headwinds are strong‚" the report read.
The bank cut its US growth forecast to 1.5% for the year‚ compared with 1.7% because of the automatic spending cuts which came into effect on March 1.
While the US unemployment situation is expected to improve‚ the pace of that improvement is expected to slow because of the spending cuts.
In Europe‚ the political deadlock in Italy poses significant risks to the global economy. The Italian elections were two weeks ago‚ and the country is no closer to forming a new workable government.
Sentiment in the Italian bond market has held up remarkably well. But the longer the deadlock‚ the more nervous investors will become. Markets ignored Fitch Ratings' decision to cut Italy's redit rating to BBB+ in a move to bring it in line with the other two major credit ratings agencies. – BDlive
