November 2017

• The global economic outlook remains sunny, with growth stronger than expected in most parts of the world. This benign state of affairs could be misleading because “averages” don’t mean anything anymore. Aggregate data about income or consumption are no longer a true reflection of ‘average’ living conditions, as inequalities become skewed between top and bottom. In the US, for example, the average household in the top 40% earns four times more than in the bottom 60%. This results in two economies within one, running at different speeds (high for the well-off and slow for the ‘others’). National statistics tend to distort this phenomenon that nonetheless negatively impacts aggregate demand.

• To make sense of the point above, take the example of the labour market. In many developed economies, data paints a rosy impression, with unemployment at historically low levels. Yet, delving into the detail reveals a reality far from rose-tinged: people have a job, but at the ‘fat’ low-end of the income curve, they are overleveraged, dissatisfied, stressed, powerless and resentful. They have had no growth in real income for years and are tangled in an inextricable mix of economic, social and emotional problems. It’s been given a name: the “shit-life syndrome” – the main reason why global growth is slowing and populism increasing.

• A flattening US yield curve (it was, earlier this month, at its flattest point in 10 years) is a warning sign. It could be seen as relatively benign – a reflection of receding inflation risks and the prospect of interest rates kept lower for longer, but equally as a signal that the current economic expansion is approaching its end. Watch this space! . . .

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