SPYD - 2023 Principal Global Financial Inclusion Index: Potential Impacts On Global Economies

2023-10-07 02:25:00 ET

Summary

• Financial inclusion in the U.S. has significantly decreased, possibly due to employers preparing for leaner times ahead.
• Southeast Asian economies like Thailand, Malaysia, and Singapore are rapidly advancing in financial inclusion.
• The weakening Chinese economy is impacting global markets, and particularly in Europe, where financial inclusion is stagnating.

The 2023 Principal Global Financial Inclusion Index indicated that despite many economies navigating through a period of supply-side shocks, heightened inflation, and the consequent adjustments in interest rates, financial inclusion is improving on a global level.

For investors, financial inclusion is tightly correlated to economic resilience, human development, and productivity, and could be read as a leading indicator of what might begin to appear in the hard economic data over time.

Global Financial Inclusion Index scores by region

2022 versus 2023 and YoY change

Source : Principal Financial Group, Centre for Economics and Business Research. Data as of October 4, 2023.

The 2023 Global Financial Inclusion Index data reveals four trends with potential effects on global economies, markets, and investors during the period ahead:

1. Financial inclusion in the U.S. has significantly decreased, possibly due to employers preparing for leaner times ahead. Despite a stronger-than-expected economy, businesses are showing increased caution due to elevated interest rates, persistent inflation, and potential economic slowdown.
2. Southeast Asian economies like Thailand, Malaysia, and Singapore are rapidly advancing in financial inclusion. This progress allows a larger portion of their population to participate in the financial system, reducing their reliance on China in the long term. Improved access to banking services, credit, and capital enhances their potential for independent economic growth.
3. The weakening Chinese economy is impacting global markets, and particularly in Europe, where financial inclusion is stagnating. Unlike Southeast Asia’s rapidly evolving and supportive financial system, Europe’s is failing to inspire greater confidence in businesses and is struggling under traditional manufacturing industries and inflexible market conditions.
4. Emerging markets (EMs) are transitioning from facing headwinds to benefiting from tailwinds. Quick central bank actions in EMs have helped control inflation sooner than developed markets. This highlights the significance of proactive government policies that drive growth and boost domestic productivity, fostering a greater sense of financial inclusion.

From an investment perspective, these trends illustrate the importance of a granular approach. Against this macro backdrop, active asset allocation is critical.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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