Economic Growth Outpacing Central Bank Interventions in Stock Markets

As central banks scale back their monetary policies, the impact on global stock markets has remained surprisingly positive. Robert Bergqvist, a senior economist at SEB, asserts that the cessation of aggressive monetary expansion is not detrimental to the stock market, suggesting a shift toward a self-sustained economic recovery.

During the pandemic, major central banks expanded their balance sheets by an astonishing 70%. However, since 2022, these central bank assets have contracted by 25%. Despite this retraction, global stock markets have risen by 35%, indicating that underlying economic factors such as growth, productivity, and innovation are now driving these gains more than central bank interventions.

Bergqvist references Milton Friedman’s view that inflation connects closely to monetary phenomena, arguing that if the money supply grows significantly faster than the economy, inflation will ensue. The historical link between money supply and inflation has been inconsistent, prompting central banks to pivot from managing money supply to adjusting interest rates to navigate economic complexities.

He underscores the crucial role of banks in credit provision, vital for supporting economic growth, as the Swedish money supply (M3) has maintained a 5% increase amid decreasing central bank intervention. Bergqvist emphasizes that innovation and effective capital use are the true engines powering the stock market's trends, not merely the ebb and flow of central bank policies.