New tools are needed to assist investors to fully understand the nature of the business cycle, as economists have historically struggled to spot recessions in advance, according to Standard Life Investments.
Commenting on Standard Life’s launch of a new analytical toolkit to assist investors, senior global economist, James McCann said concerns across Europe and US were more difficult than ever to predict.
“Business cycles do not die of old age, rather they come to a painful end as a trigger forces the unwinding of financial and/or economic imbalances.” he said.
“There are reasons to believe the next global downturn could be onerous, making it even more critical to spot this well ahead of time.”
McCann said the Standard Life toolkit would create business cycle indicators factored in from a range of financial and economic data to better predict the maturity of a cycle and foresee major bottlenecks, particularly recessions.
“Country level indicators provide us with useful insights…they currently highlight divergences across Eurozone member states, with Germany being flagged as more advanced in its cycle, while France, Italy and Spain are lagging with ample spare capacity.
“While the current cycle is getting old in terms of duration, it still has room to run in most economies, including the United States.”
McCann said the positive news for the current cycle was that the global economy still had room to continue its growth.
“These tools make us confident that we can use them to assist with our asset allocation process over the course of an economic cycle,” he said.
“This reinforces our conviction that the global economy will grow modestly above trend this year and next and that now is a good time for investors to extend their time horizon.”