June has seen a broadly improving outlook for global growth, which is now estimated to come close to 4% a year for 2018, compared to closer to 3% growth a year for most of the past decade. This may seem like a small improvement, but it makes a significant difference to the overall health of the global economy. This is especially true for the stock market, where small changes to growth rates can result in large changes to company profits, and hence share prices.
However, risks are surfacing. Oil is a significant part of many parts of the economy and so the rise in the oil price over the past year is potentially a negative that may raise costs for many businesses. In addition, various emerging markets are showing signs of potential stress. Examples here include Turkey, Brazil and Argentina, all for different reasons. It is too early to gauge the impact of these events, which could be early signs of a broader issues, or simply temporary issues that will reverse in the coming months.
Finally, trade policy appears to be changing in the U.S. Reductions in global trade may also prove to be a negative for global growth over the coming months and years, depending on how various negotiations conclude. Despite these potential negatives, we should not ignore the reality that globally growth is improving and unemployment is declining. These are both positive signs. Also, we virtually never see growth without some risks to the outlook.
For example, it is important to remember that over history we have seen world wars, the threat of nuclear apocalypse, terrorist attacks, assassinations, serious disease outbreaks and many other traumatic events. Nonetheless, despite all these causes for concern and potential risks, diversified portfolios have typically achieved steady growth over time even when the above events are included. Therefore, the risks we see today are nothing new when viewed with a historical perspective.