Share markets have become more volatile in Australia and elsewhere on the back of jitters over the timing of the Fed’s next rate rise and concerns over whether central banks in Europe and Japan will be able to provide more stimulus. In addition, September is a historically bumpy month for markets. In this video, Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, discusses whether this cloud may have a silver lining.

Volatility returns to global markets

Volatility levels have notched higher on share markets around the globe due to monetary policy concerns and seasonal jitters after share markets gained 15 to 18% from their February lows.

The volatility stems mainly from mixed messages as the Federal Reserve debates the timing of its next rate rise amid concerns that Japan and Europe might be nearing the bottom of the barrel in terms of fresh monetary policy measures to stimulate economic growth.

Mixed economic indicators out of the US have also spurred concern.

Global economic outlook

As policy makers nut out which measures to deploy next, the strong economic growth they’re trying so hard to stimulate remains in the distance. However, the good news is recession is not on the horizon.

There are several reasons why:

  1. We haven’t seen signs of excess. If you look at business indicators around the world, which are basically surveys measuring whether companies are feeling happy or sad, they’re running at levels consistent with moderate growth – with global growth averaging about 3 %.
  2. The US consumer is in good shape, the savings rate is reasonably high, and with employment growth coming through in the US and wages growth gradually picking up, that should underpin growth in US consumption.
  3. Likewise when you look at Europe, despite the Brexit fears, the European economy is still growing, albeit moderately.
  4. More recently, we’ve seen economic data coming out of China which is consistent with growth stabilising somewhere around 6.5 to 7%.

All of those things suggest global economic growth is not booming -- but we’re not about to fall off a cliff either.

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