Synchronized Global Growth Strengthens

by:
Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

The global economy is showing strength exceeding expectations, with not only consumer spending, but also – importantly – business equipment spending now improving broadly across world regions.

For a big part of the recent decade, the U.S. was the primary engine of global growth. The debt crisis in Europe, stagnation in Japan, a feared slowdown in China, and a slump in commodities posed headwinds for growth. Today, however, we have synchronized improvement in economic activity, with global growth at a six-year high.

Exploring Drivers of This Broad-Based Recovery

In Europe, we’re seeing solid growth in manufacturing, despite a stronger euro. Solid signals for new orders and investor sentiment in September and October suggest continued strength.

In Japan, aggressive monetary and fiscal policy has led to an improvement in growth. Rising corporate profits and solid business confidence (Figure 1) are powering business capital spending. The re-election of Prime Minister Abe is an encouraging sign that these long-running economic reforms will continue.

Figure 1: The Japanese Tankan Barometer of Business Conditions Hits a 10-Year High

Source: Bloomberg, as of 10/23/17. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index. Tankan is an economic survey of Japanese business issued by the central Bank of Japan, which it then uses to formulate monetary policy.

Most importantly, China’s economic growth continues to exceed expectations. Economic growth was at 6.8% in the third quarter. Last month, continued double-digit growth in retail sales showed how consumers are increasingly taking the lead. The new consolidation of power, following the Communist Party Congress last week, may allow President Xi to push for further structural reforms.

This synchronized global growth looks poised to continue for the remainder of this year and next, and underpins revenue and profits growth across most sectors.

The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.

All investments are subject to market risk, including possible loss of principal. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist and Portfolio Manager with New York Life Investment Management’s multi-asset strategic asset allocation & solutions (SAS) group

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