http://www.sitfunds.com/wp-content/uploads/2013/12/rjs0421.jpg533800sitwordpresshttp://www.sitfunds.com/wp-content/uploads/2016/03/logo-top.pngsitwordpress2014-04-21 18:44:232017-01-17 12:20:18Roger Sit
U.S. economic growth is gaining momentum due to pro-growth policies. The current U.S. economic expansion, which is entering its tenth year, remains underpinned by a virtuous cycle of improved confidence and spending. Leading macro indicators suggest U.S. economic momentum will continue to improve into at least 2019, with the knock-on effects of stimulative fiscal policies, deregulation, and still easy financial conditions delivering potential upside surprises. Real GDP growth is poised to rebound sharply to an annualized pace of about +3.5 percent in the second calendar quarter of 2018 from +2.0 percent in the first quarter, driven by gains in consumer spending, fixed investment and private inventories as well as by a reversal in seasonal adjustment factor distortions. Modest growth detractors include higher oil prices, interest rates and the U.S. dollar. Newly imposed tariffs should have only a marginal negative impact on GDP growth in 2018, but continued escalation of trade tensions represents a notable risk to the outlook.
Economic growth is moderating in the Euro Area and U.K. as currency appreciation, global growth divergences, U.S. trade conflict and policy uncertainty all take a toll. However, macro indicators continue to imply respectable growth prospects for the region. Consumers remain in solid shape, with confidence growing, unemployment decreasing and wages rising. A strengthening euro has weighed on exports, which account for 50 percent of GDP. Increased trade tensions and policy uncertainty have negatively affected business conditions of late. These factors are impacting the U.K. as well, but the outlook for consumer spending is less positive. Asymmetrical economic growth, a perceived loss of national sovereignty, and the refugee crises have all helped fuel an upsurge in populism across Europe, upending the postwar political order and cultivating policy uncertainty.
Japan is running short on options to spur domestic demand following years of stimulus and reform efforts. Elevated debt and upward pressure on spending due to an aging population limit Japan’s fiscal spending options. Monetary policy increasingly appears to have reached its limits. Therefore, we remain negative on the country’s long-term outlook.
Escalating trade tensions, stronger U.S. dollar, rising U.S. interest rates, and higher oil prices continue to weigh on a number of emerging market economies. China is easing policy amid signs of slower growth, and Brazil’s nascent recovery faces challenges. Conversely, India is poised for better growth post reform.
For more details, including a longer discussion on the possible threat of global asset bubbles, please see the complete Sit Investment Associates’ July 2018 Global Investment Outlook and Strategy paper. Click here: Global Outlook and Strategy (Adobe Acrobat).
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