BBB recovery keeps central banks in play
There is a good chance that this economic expansion could become one of the longest since we can track a global cycle.
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THE global economy is now in the sixth year of a bumpy, below-par and brittle (BBB) recovery from the Great Recession. With inflation running below target in most major economies, and central banks thus continuing to provide ample accommodation, this expansion may well become one of the longest on record. The combination of super-low interest rates and a slower but longer economic expansion suggests that equity markets should continue to grind higher.
Global growth has accelerated in the second half of this year after digesting several shocks in the first half, including the US deep freeze, China's slowdown, the consumption tax hike in Japan, the onset of the Russia/Ukraine conflict, and accelerated bank deleveraging in Europe ahead of the bank stress test. The global economy looks set to maintain this higher second-half growth pace of around 3.5 per cent in 2015.
However, the economic expansion is likely to remain bumpy, below-par and brittle, for two reasons. First, in the developed market countries, we are witnessing a two-speed economy. In the fast lane, the US and the UK are pacing ahead at 2.5-3.0 per cent. Meanwhile, in the slow lane, GDP growth is likely stuck at around 1.0 per cent in the euro area and Japan for 2014-15.
