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Good to Gooder to Goodest?

by Craig Basinger, CFA

Last summer, something that started out rather small has been slowly gaining momentum ever since – the return of economic growth. If you can ignore the media, day-to-day focused news reporting, and look into the less exciting economic data in the background, we are seeing broad based improving momentum. This has only briefly occurred during the past decade as economic growth appeared to rotate from one economy to another in fits and starts as you looked around the globe. Everyone bounced back after the recession of 2008/09, but since then there hasn’t been an extended period of synchronized growth.

In 2010, Japan faltered and dipped back into negative economic growth, while the U.S. stalled. Japan and the U.S. started to grow again in late 2011, but Europe began shrinking until 2013. Late in 2013, the U.S. stalled and Japan’s economy started to shrink again. The U.S. resumed growing but Japan didn’t until 2016. Sprinkle in developing economies, which are more tied to the price movement of commodities, and it is easy to see why this economic expansion has had such difficulties. The chart to the right shows the GDP of the U.S., Eurozone and Japan over the past decade. The shaded areas are the only periods that had all three expanding by at least 1% a year.

If you included developing economies as a group into this chart, the 2014 shaded bar would disappear and the current shaded bar would not have started until Q3 of 2016. But make no mistake, we now have improving GDP growth in the U.S., Eurozone, Japan and developing economies. This momentum does appear to be on the rise as well. One of the problems over the past decade has been when the data began to improve, it was fleeting and would revert back to either negative or very anemic growth. Now, we are seeing the consensus economic forecasts on the rise.

 

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