Synchronized Global Growth Strengthens
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.
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