UBS Wealth Management Global Chief Economist Paul Donovan: Economic General Outlook

On September 22th, 2017, UBS Wealth Management Global Chief Economist Paul Donovan presented his general outlook entitled Issues that are affecting economies and financial markets around the globe to the MSc in Finance students.
UBS Investment Bank Global Chief Economist Paul Donovan Global Outlook
Mr. Donovan started his talk by this rather bold statement: “The probability of a global recession in 2018 is almost zero”. To support his claim, Paul explained that a short term policy error would be the only factor that could turn a growing economy into recession mode and argued that it was very unlikely next year given the over-cautious actions that central banks had been undertaking since 2009. He further explained that the length of recessions in the future will be anyway shorter given the new inventories management policy of companies that will prevent wild fluctuations in GDP numbers.
Regarding the financial markets, Mr. Donovan is confident that nominal economic growth will lead to earnings growth meeting markets’ earnings expectations, and that even negative revisions of growth figures will not affect equities markets’ initial reactions.  As for the bond markets, Paul is doubtless: these markets will stay in a rigged mode for quite some time. “When you have central bankers calling every day the CEOs of the biggest commercial banks to make sure that they bought enough government bonds, global interest rates cannot go up too quickly”. He estimates the fair value of the US 10-year yield to be around 5% compared to its current value of 2.3%. 
Paul also talked about global capital flows, stressing the continuing downward trend from 23% of world GDP in 2007 to a mere 7% nowadays. This shift of the center of gravity towards current account deficits/surpluses has consequences for currencies and notably the Euro/U.S. Dollar rate that Paul sees continuing its appreciation in the medium term.
Students and professors alike met his compelling presentation very enthusiastically and participated eagerly in the Q&A session.

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