Is the world economy’s current, long-running upturn running out of steam? Jittery financial markets that have struggled to regain a firm footing since February’s sell-off, anxieties over the US-China trade tariffs confrontation, and now a spate of weaker data for some major economies have all sparked concern over whether the global economy’s expansion may be stuttering or at risk.
Lost amid Europe’s political drama and recurrent euro doomsday scenarios is the fact that the Eurozone economy has a business cycle that is alive and well.
Our analysis suggests there is plenty of room left in the current expansionary cycle, which could see the single currency area enjoy a golden decade of economic growth.
More than four years into the current upturn, most indicators signal the Eurozone economy is still somewhere around mid-cycle, suggesting that – absent an unexpected shock – we should see several more years of sustained expansion.
One reason is that the amount of economic slack in the Eurozone countries – the size of the “output gap” before an economy hits a ‘speed limit’ above which growth comes with inflation – may be larger than commonly accepted.
Equity earnings cycles to power ahead – especially in underperforming Europe and EM markets
The world economy is evidently in the midst of what many are calling a synchronised upswing in growth. A strong rebound in manufacturing, led by Europe, appears to be at the heart of the resurgence. And the pace of expansion has accelerated in recent months. This environment is fundamentally conducive to outperformance by assets leveraged to global growth.
Investors have now been uneasy for many months that in some key global equity markets, shares are becoming overvalued, with share prices relative to corporate earnings – P/E ratios ¬– stretched, especially in the United States.
But our analysis concludes that equity earnings cycles, especially in underperforming markets in Europe and emerging markets (EM), should continue to power ahead for some time.
February 2017: A recovery in trade
Each month Oxford Economics’ team of 160 economists updates its baseline forecast for 200 countries using the Global Economic Model, the only fully integrated economic forecasting framework of its kind. Below is a summary of our analysis on the latest economic developments, and headline forecasts.
We expect significant changes in the world economic order over the next decade and a half. Not surprisingly, Chinese cities will be at the forefront of these changes. The aggregate GDP of China’s 150 largest cities is forecast to double from around US$10 trillion today to US$20 trillion in 2030 (measured in 2012 prices and exchange rates). This means that Chinese cities will account for almost half of the increase in global city GDP and will represent a third of total urban GDP by 2030. By contrast, the combined output of the 58 North American cities covered in our analysis will rise by US$4.0 trillion, followed by non-Chinese Asian cities (US$3.5 trillion) and then European cities (US$3.2 trillion).