Anti-recessionary ammunition running low

Governments and the central banks have given it their best shot, but the start to 2016 has been such that real questions need to be answered about whether it all adds up to still being able to avoid a recession.

That is the central theme of Stephen van Eyk's address to Money Management's Investment and Asset Allocation breakfast in Sydney next week, where the impact of the slow-down in China will be weighed against the other factors impacting global investment markets.

Van Eyk's analysis of the current situation notes that gross domestic product growth has been gradually falling for the last 30 years and that despite extraordinary injections of liquidity the economic malaise has continued.

The Money Management breakfast will also receive input from an expert panel, including Magellan's Sam Churchill.

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The timing of the breakfast has been targeted at wrapping up the factors which have so significantly impacted the start to 2016 and come at a time when US-based Principal Global Investors is also asking some key questions which coincide with the themes being pursued by van Eyk.

Principal's chief global economist, Bob Baur, and senior global economist, Robin Anderson, have this week released a paper looking into the elements underpinning a loss of confidence and lack of stabilization in credit markets.

Their key insights include:

• Plunging oil prices, combined with a surge in the US dollar have resulted in symptoms characteristic of a recession. The major risk now lies in sentiment, with the threat of households catching onto potential corporate sector weakness effectively disabling any real income gains from keeping up confidence and spending;
• January saw the labor marketing tightening, with US payrolls reducing to 151,000 from 190,000 and the three-month average dipping down to 229,000 from 278,000, suggesting the Fed was right; and
• Volatile markets worried those in a tightening mode, driving the convergence of central bank policies and forcing rates down around the world.

With the US expansion reaching almost seven years of age, business balance sheets worsening and credit market debt to equity increasing, there is mounting concern that we are headed towards another economic recession.