Despite Some Turbulence, Global GDP Closes 2016 On A High

Despite Some Turbulence, Global GDP Closes 2016 On A High

Stratas Advisors
Feb 13, 2017
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This excerpt is from a report that is available to members of Stratas Advisors’ Macroeconomic Outlook and Short-Term Outlook services.

Despite growing concerns about possible negative spillovers from President Trump’s anti-free-trade, anti-immigration and economic policies, global economic activity appears set to enter 2017 with some positive momentum. Per our advance estimates, global GDP growth, aggregated via market exchange rates, perked up to 2.5% in fourth-quarter 2016. This is the highest rate of global GDP growth seen since fourth-quarter 2015, and a recovery of three-tenths of a percentage point from the most recent trough of 2.2% YOY in first-quarter 2016.

This recovery is an amalgamation of several trends. Among them is a rebound in emerging market economies’ contribution to global economic growth over recent quarters. Their contribution to global GDP averaged close to 70% during the four quarters of 2016, after having dipped to just over 61% during the first half of 2015.

In the emerging market universe, a dip in India’s fourth-quarter 2016 GDP growth was more than offset by gradual recoveries in Brazil and Russia. Although the change in YOY GDP remains in negative territory in both countries, they have at least hit bottom and are now headed in the right direction. In particular, legislative activity addressing serious structural weakness in the Brazilian economy, e.g., fiscal policy, social security entitlements, labor law reform, could set the country on a firmer path to a subsequent pick-up in economic activity.

China’s domestic demand growth remained resilient in fourth-quarter 2016, although a sharp spike in producer prices may portend more restrictive monetary policy in coming quarters. China’s performance remained steady; nonetheless, an economic backdrop that had been plagued by persistent producer price deflation has reversed sharply in recent months. This could present a material headwind to demand growth in coming quarters.

Among developed economies, the U.S. continued to chug along, but at an underwhelming pace. After a torrid first-half 2015 (GDP growth topped 3% YOY during that period), the U.S. has endured five straight quarters of sub-2% YOY growth. While payroll additions remain solid, the rate of aggregate wage growth, i.e., hourly wages times payroll headcount times hours worked, has eased from an average growth of 5.2% during second-half 2014 and 2015 to an average of 3.6% during 2016.

In Japan, economic activity has remained subdued; but it has at least become less volatile. We estimate that Japan’s GDP YOY% growth, as of fourth-quarter 2016, has now hovered around 1% for three straight quarters—this after a preceding period of sharp swings.

Lastly, at 1.6% YOY, GDP growth in the Eurozone remained solid despite a high base of comparison (in the base quarter, first-quarter 2015, seasonally adjusted QOQ growth had risen by a robust 0.5% YOY). Unemployment continues to decline (albeit from a high base) and YOY aggregate wage growth has edged above 3% for three straight quarters (after 27 straight quarters of sub-3% YOY growth).