What Global Synchronized Expansion?
Special Commentary | Written by Leo Goldstein
Economic growth in the developed world has averaged 1.8% since 2011, with several failed attempts at accelerating beyond 2.0% for a sustained period of time. Faster growth would likely have implications for monetary policy implementation. For this reason, it is important for investors, especially in fixed income, to be able to determine if growth is on an accelerated trend to correctly position their portfolios. Every so often, markets get excited about the prospects for faster growth. This year is not different. Many analysts and media outlets have pounded the table on the notion that the global economy has entered a new synchronized expansion not seen since the financial crisis. We analyzed the data to determine the validity of this position.
Consensus is building around the notion that economic growth is now synchronized across the globe’s largest regions for the first time in many years. The enthusiasm includes the perception that global growth is accelerating robustly. However, the ongoing debate about soft data releases (i.e., survey based) vs. hard data indicates that there is insufficient evidence to conclude that the world economy is on stronger and sounder footing. In this report we address two important issues:
- Is global growth actually synchronized?
- If so, is it accelerating?
Our preference is to use gross domestic product (GDP) as the ultimate indicator of economic growth. Many like to point to Purchasing Managers’ Index (PMI) and Institute for Supply Management (ISM) as good proxies, and at times this data has been useful in analyzing economic trends. But, in a time of heightened political uncertainty and the implementation of extreme monetary policy throughout the world, shifts in sentiment can be dramatic, which can make survey data misleading as it relates to the underlying strength of the economy. Therefore, we think that GDP best captures the state of an economy. >>READ MORE