Another week, another sell off. Investors reversed their short-lived feeling of optimism and exited their equity positions as oil continued its downward spiral. The 'R' word - recession - is now part of Central Banks' near-term focus and the decline in longer term bond yields seems to confirm a weakening economy.
Despite this negative market sentiment, global economic fundamentals look decidedly better. The IMF expects world growth of 3.4% this year, up from 2015. Weaker oil prices do not necessarily mean a weaker economy. Rather it’s a supply-demand disequilibrium causing falling oil prices and the repatriation of capital by OPEC Sovereign Wealth Funds that explains, in part, falling markets. Collapsed oil prices is now transferring hundreds of billions of dollars of wealth to oil importers from oil exporters. This is likely to trigger an increase in consumer spending.
The market turmoil may be unnerving, but it’s not necessarily a sign that global growth is finished. Cheap energy just might save the day.