BANK OF AMERICA: The global economy is experiencing ‘death by 1000 blows’

REUTERS/Yuya Shino

The start of 2016 has surprised everyone with the viciousness of the markets.

Oil collapsed below $30 a barrel then rallied.

Stocks in Asia triggered circuit-breakers in the first week and then whipped back.

In these conditions it’s tough to make a call on global growth but the economics analysts at Bank of America have had a go.

And they don’t like what they see.

Here’s the core quote from a note from Bank of America’s economics team led by Ethan S. Harris, titled “Death by a thousand blows:”

With continued weak data and confidence shocks from capital markets, we are lowering our 2016 GDP growth forecast from 2.3% to 2.1%.

In light of persistently disappointing productivity and labor force numbers, we are also cutting our estimate of potential GDP growth for the next five years from 2% to 1.7%.

The reasons for the dire outlook are numerous, but there aren’t 1,000 of them, despite the title of the note.

Bank of America groups them into four main categories:

• Mining investment has fallen faster than expected. The consumer benefit of lower oil prices and a commodities crash, which makes everyday items like petrol cheaper, has been weaker than people thought and not enough to offset the effects of job losses in the energy and mining sectors..
• Credit conditions are getting tighter and debt more expense to raise for companies. The sell-off in high-yield bonds has been aggressive and shows falling demand for debt.
• Bank of America analysts think that conditions in the machinery sector, capital expenditure and rail transport are weaker than official data suggest, pointing to lower growth in the future.
• Investors “have gotten into a very negative mood around China and oil,” according to the analysts. Negative press reports have hit confidence harder than analysts were expecting, and have been reinforced by weak economic figures.

Of course on the Friday that Bank of America released the new forecasts, markets rallied across the world and oil rocketed up past the $30 a barrel mark. With markets this volatile, any predictions will likely be subject to revision.