The Global Stock Markets have rallied beyond its mean of 50.45 pct on three previous occasions and on all three we have had a significant correction lower, with balance sheets wiped out.
The same is witnessed in 2016-2017; the Market Capitalization is currently at 97 pct of GDP. While Gross Fixed Capital Formation as a percentage of GDP is indicating a declining trend (Blue line). This is indicative of a trend going against fundamentals and the ability generates such high market capitalization gains remains questionable.
Therefore, Econsult expects 2019 to be a year of lower corrections in the global stock markets. This downturn can signal another deeper adjustment in global GDP as our Sri Lanka too must be watchful, as our external finances can be under stress.
Sri Lanka raised USD 2.0 billion international sovereign bonds on the strength that IMF has endorsed the country’s economic performance, while the bonds having been rated by international rating agencies as “Non-Investment” grade. In fact Moodys attached “B2” rating while Standard and Poor’s and Fitch assigned “B” rating. The USD 500 million face value bond with 5-year maturity was raised at a semi-annual coupon rate of 6.35 percent while USD 1,500 million with 10-year maturity was raised with a semi-annual coupon rate of 7.55 percent. The Bonds were subscribed by 91 percent fund managers while 5 percent came from insurance and pension funds.
Sri Lanka entered in to the international bond market in 2007 and the June 2019 issue was the 14th USD benchmark offering. This was also the country’s second sovereign bond transaction this year. The Government of Si Lanka raised USD 1 billion 5-year bond at a semi-annual coupon rate of 6.85 percent and a 10-year bond at a semi-annual coupon rate of 7.85 percent in March 2019.
Sri Lanka has USD 17 billion ISBs as of June 2019 and account for nearly 50 percent of Government external debt.
IMF Chief Christean Lagarde in her message in the IMF Annual Report 2018 says that countries should promote an open and rule basis multilateral trading system, and should strive to make new technologies work for all – boosting rather than undermining inclusive growth and financial stability.
According to her, the growth momentum of the global economy is under pressure from a slow erosion / weakening of trust in institution due to, a) the lingering effects of the global financial crisis. b) perception that the rewards of economic growth and globalization are not being shared fairly and equitably. c) anxiety over future of jobs and economic opportunity. d) weak governance frameworks that often facilitate corruption. She further emphasizes that population ageing and over-funding of pension schemes are holding back economic momentum. Income disparities are widening and if unaddressed the climate change is likely to severely disrupt economic wellbeing in the decades ahead.
Lagarde urged that European Union (EU) leaders need to redouble their efforts to lift living standards across the continent as populist movements question the merits of integration. The poorer southern countries in the EU have not caught up with their richer northern peers – a gap that has worsened since the global financial crisis. Between 2008 and 2017, the average annual growth in real income per person, was negative in the five southern members of the euro zone, hit hardest by the crisis.
She urged EU countries to reform their labor markets so that firms have greater flexibility in hiring and firing workers and their business climate becoming more welcoming to investment. These developments it is hoped, would increase spending on research and development.
Lagarde’s remarks come amid a turbulent debate over Britain’s exit from the EU, as well as amidst signs of spluttering growth in the world’s biggest economic bloc. The IMF partly blamed softening demand across Europe for having to cut its 2019 forecast for global growth, for the second time in three months.
South Asia to remain fastest growing region in world
The World Bank Global Economic Prospects Report released on 05th February 2019, expects South Asian regional growth to accelerate to 7.1 percent in 2019, under pinned by strengthening investment and robust consumption. India is forecast to grow by 7.3 percent as consumption remains robust and investment growth continues. Bangladesh is expected to grow by 7.0 percent supported by strong construction and infrastructure investments. Nepal growth forecast to moderate to 5.9 percent. Sri Lanka is anticipated to grow by 4.0 percent supported by domestic demand and infrastructure projects. Pakistan is projected to decelerate by 3.3 percent with financial conditions tightening.