Economic Insights

A recent strengthening in growth among developed-world nations may help offset some of the economic impact of the outbreak.

In light of the recent coronavirus outbreak centered in China, investors have lowered their expectations for global economic growth and industrial commodity demand. Moreover, since the extent of the infections caused by the new pathogen, and the duration and magnitude of the interruption to economic activity in China, are not yet known, the timing of the potential rebound in economic activity following the negative shock is also uncertain. Thus, demand for gold and other safe haven investments has risen.

One positive aspect in the current setting is that key economic activity indicators across a range of nations in the developed world had started to exceed expectations in recent weeks. Improvements in performance were registered in the United States, Euro Area, Japan, and Australia. Overall, developed economies went from falling short of expectations for key data releases by 1.7 standard deviations a month ago to exceeding them by 0.4 as of January 28.


Table 1. Performance of Key Global Economies Had Recently Started to Exceed Expectations
Variance of reported economic data from consensus expectations (standard deviations), as measured by the J.P. Morgan Economic Activity Surprise Index

Source: J.P. Morgan. The J.P. Morgan Economic Activity Surprise Index captures shifts in growth perceptions for global economies by looking at the recent history of economic activity surprises from consensus estimates. EM=Emerging markets. EMEA=Europe, Middle East, and Africa. LATAM=Latin America.
The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Past performance is not a reliable indicator or guarantee of future results.


Clearly, the positive impetus to the global economy, EM Asia in particular, deriving from improvements in China is poised to shift to a significant drag, in our view. But we believe the positive momentum going into the still-unfolding coronavirus outbreak should provide some resiliency to the downside as economies adjust to the prospective drop in global demand.

Indications that the U.S. economy is picking up following a dip to just 2% growth in the fourth quarter of 2019–the official preliminary estimate will be released by the U.S. Bureau of Economic Analysis on January 30—are of particular significance. Low jobless claims show that the U.S. labor market remains robust, underpinning near record-high consumer confidence. Since consumer confidence is a leading indicator, and U.S. consumer spending is slightly larger than Chinese GDP, this is a reassuring source of support for global demand.

Moreover, while China’s central bank and fiscal authorities are very likely to be formulating stimulus plans to support growth, in our view, the U.S. Federal Reserve could also supply additional stimulus, if it came to believe that risk emanating from a slowdown in China threatened to spill over to U.S. growth. Monetary policy flexibility in the United States is still two-sided because inflation expectations remain anchored below levels consistent with the Fed’s 2% inflation target. Thus, further easing, even with the U.S. unemployment rate at a very low 3.5%, remains an option. While combating the spread of this dread disease remains a challenge for governments around the world, we think it’s important for investors to remember that policymakers do have tools to blunt its impact.


The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Investing in international denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. The securities markets of emerging countries tend to be less liquid, especially subject to greater price volatility, have a smaller market capitalization, have less government regulation and may not be subject to as extensive and frequent accounting, financial and other reporting requirements as securities issued in more developed countries.                                   

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Standard Deviation measures the dispersion of data from the mean. Applied to a rate of return, standard deviation is an indication of an investment’s volatility.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education.  No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.   If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.