a week ago
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.