Anyone who restricts their outlook on the economic outlook to news flow in the UK is likely to have a sense that recession is just around the corner or may even have begun. Starting with the Covid pandemic, and closely followed by debilitating inflation, the headwinds have undoubtedly been fierce. Mortgage holders who are facing painful hikes in their interest rates might be forgiven for looking back wistfully on the era of near-zero rates, but those rates reflected the recessionary and deflationary worries that followed the GFC. For too long, fear of recession has dominated news flow in the UK.
Whilst the past five years have been difficult when the UK is considered in isolation, the global economy has become more diversified and has demonstrated a level of resilience, with Asian economies growing in influence and the US continuing its dominance.
The UK, however, has had a unique position in the global economy and has been consistently ranked among the top 5 economies in the world even whilst other regions have grown and then regressed. China is currently ranked number 2 with India now actually having passed the UK in the latest rankings. On current projections, India will replace China over the coming decades, with the US continuing in pole position.
As investors, our focus is, firstly, on global economic growth, and then on which economies are driving this growth. The more diversified nature of global economic growth today should be seen as positive but frequently it is reported by analysts and commentators as a negative factor. The negativity stems from the belief that the globalisation impulse which supported healthy trading relationships has been reversed in the aftermath of Covid, and that trade barriers arising from the UK’s departure from the EU will result in poor economic growth. These two factors may well be negatives but there are also positives.
China, India, and the ASEAN (Association of Southeast Asian Nations) account for over 50% of the global population. These countries can offset the impact of higher tariffs in the developed world as well as making a more meaningful impact on global economic growth.
The purpose of highlighting this is that the global economic outlook is not as negative as many would have us believe. Inflation is a problem in certain regions, but not in others. The chart below is quite telling: since 1960, the global economy has actually only experienced a recession twice, once after the Financial Crisis of 2008 and the other during the Covid Pandemic.
Source: World Bank, 31st December 2022
Well managed, globally diversified companies are uniquely positioned to take advantage of stronger growth and in Asian economies where populations are growing and prosperity is increasing. So too are the best local businesses in Asia. Our strategies are positioned for this better outlook, and we avoid being too closely swayed by the more challenging outlook closer to home. The inflationary tide will abate, we have little doubt which boats will sail through this current storm.
