Whats been happening to growth - what to do now

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Registered: ‎10-03-2016

Whats been happening to growth - what to do now

Persistently weak 1Q GDP profile largely has been revised away while our signals suggest  global business spending is improving.  During the first few weeks of this year a number of central banks moved more hawkish.

 

Global GDP growth has been remarkably stable this expansion, with the standard deviation of annualized quarterly global GDP growth tumbling to 0.4%-pt, over the past four years, its lowest level in nearly half a century. As JP Morgan explain though this stability was not apparent as we moved through this period as the first global GDP readings have displayed significant volatility as we turned into a new year. In each of the last four years, the weakest initial quarterly report came in the first quarter. These persistent early-year disappointments weighed on risk assets, particularly as initial GDP readings for the US contracted in 2014 and 2015 and dipped below 1% last year

GDP reports change, however, as incoming information is received and methodologies evolve. As a result of these revisions, these early-year dips have largely disappeared (Figure 1). From its initial reported slump to 1.4% annualized in 1Q14, global GDP is now tracking 2.4%; 1Q15 saw an even larger upward revision, from 2% to 3.2%. Much of the smoothing can be attributed to the US where the average upward revision to 1Q GDP over 2012-15 was 1.4%-pts.

 

Share markets have moved higher, closing a reasonably attractive valuation gap - its now harder to enter purely on valuation reasons, but if you believe that stronger growth and more animal spirits will continue for a few more months, markets will continue to move higher and head into overvalued territory.  Below chart from our Multi-Asset Group.

Equity valuations US.png

 

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