In Europe the popular narrative of people in the countryside being left behind, while urban elites benefit from globalization and technological change, is used to explain everything from the Brexit vote to France’s Yellow Vest movement.
At a global level, the Working Capital Requirement (WCR) of large companies - a measure of financial resources that companies consume to cover operating costs and expenses, and run their businesses efficiently – has deteriorated by +1 to 70 days in 2018, back to the highest (worst) level since 2012.
Just like Sisyphus rolling a boulder up a mountain, only to see it roll down again upon reaching the top, the global economy seems to have gone back to the 2015-16 limbo after two years of strong growth. We expect +2.7% global growth in 2019 and 2020.
European companies have witnessed an unusual accumulation of stocks since mid-2018. In March 2019, the Eurozone’s inventories to new orders ratio, based on the Manufacturing PMI, hit a new peak, the highest level since the crisis of 2012 and higher than anywhere else in the world.
Explanations abound for why almost all markets are plagued by declining productivity growth. But one often overlooked factor is the age structure of the workforce. Aging is usually associated with slower productivity growth but the U.S. experience shows that workers aged 40 to 49 are the most productive cohort.
The consolidation of Eurozone public finances has made good progress in recent years, with the average fiscal deficit falling to a record low in 2018. But the legacy of the European debt crisis still looms large.