Daily Commentary

MarketMinder’s View: With this year’s Middle East hostilities, many see the global economic outlook darkening, including the International Monetary Fund (IMF). “The IMF now expects the global economy to expand by a sluggish 3% in 2026, down from 3.5% last year and from the 3.1% it had forecast for this year back in April. The fund expects worldwide growth to rebound to 3.4% next year.” While the supranational organization’s prognostications garner headlines, treat them like all others’—as one opinion among many. Tweaks to their earlier projections highlight forecasting’s general unpredictability—and how much things hinge on changing assumptions, e.g., “The IMF forecasts assume that the Strait of Hormuz reopens later this month—even though U.S. strikes on Iran resumed and President Donald Trump declared Wednesday that a ceasefire with Iran was over. They also assume that commerce through the strait returns to normal by next March.” Ok, but that doesn’t say anything about businesses’ adaptation to the Strait of Hormuz’s closure and energy markets recovering from the initial shock well before the latest attempted ceasefire. The global economy and markets have already shown they don’t require pinpoint timing in the Persian Gulf. What matters for markets is how reality squares with prevailing sentiment. To the degree the IMF’s cautious outlook reflects widespread moods, that suggests a low expectations bar for growth to clear and positively surprise. For the latest regarding the regional conflict, please see today’s commentary, “On the Iran Flare Up.”

MarketMinder’s View: While there isn’t a direct investment takeaway here, we think the argument is worth exploring given politicians, economists and other experts’ obsession with “productivity.” Conceptually, productivity is easy to understand: Do more with less. Economists say this is key to economic growth, rising living standards—and increasing wealth—since at least the Industrial Revolution. But as this piece points out, it can be devilishly hard to measure in practice. “Trouble is, in measuring GDP, you left out a lot of things you couldn’t measure. Such as? What economists used to call ‘land’. Today we call it ‘the natural environment’. When you use natural resources but don’t count them, you’re counting them as though they were adding to productivity, not depleting resources. [Deloitte Access Economics Partner John] O’Mahony says Kuwait is not twice as productive as the United States, it’s just sitting on a lot of oil. ... Then we’ve got GDP’s limited ability to capture improvements in the non-market sectors of the economy such as health and education. Patients and students benefit from advances in medical science and learning, but this doesn’t show up in GDP because it’s been too hard to measure.” As the article astutely notes, productivity measures themselves could use some productive improvements. For investors, we think the takeaway is to not take economic reports and statistics unquestionably as gospel. Examine their construction and underlying components to understand what they do (and don’t) show. Dig a little, and you might find they aren’t worth your time, saving yourself the trouble—and perhaps improving your productivity.

MarketMinder’s View: This is a false fear. Yes, France is the only eurozone nation that hasn’t cut its debt (as a percentage of GDP) since the big COVID global government spending spree. Yes, there are projections this will reach 200% of GDP by 2050 and yes, the government has been gridlocked into inactivity, which the 2027 election may not resolve. But comparing French debt to GDP is a stock-flow mismatch, a useless comparison of something that only accumulates over time (debt) to the annual amount of economic activity (non-cumulative). Better to look to debt interest as a share of tax revenue, which French stats agency Insee put at a historically benign 10 – 11% in fiscal 2025. Markets aren’t showing there is a dire problem. 10-year French OAT yields are at 3.62%, down from March’s 3.84% high and in the same range they have been in for over a year. They still yield less than the default-risk-free US, and the spread over perceived debt-averse Germany is 0.68 percentage point, close to the average 0.58 in the past five years. (Data from FactSet.) If debt were problematic, none of those things would be true. Trust markets, not pundits and debt forecasts.