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Global growth optimism lifts

Thomas White International  |  20 Feb 2013Text size  Decrease  Increase  |  

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This article was provided by global investment manager Thomas White International and was originally published on the Morningstar US site.


International equity prices sustained the uptrend in January, helped by data releases that supported the growing optimism over healthier global economic growth. Though the US and UK economies declined unexpectedly during the fourth quarter of last year, the pace of growth improved in several Asian countries, including China, during the period.

US lawmakers have given themselves more time to resolve the debate about the federal government's debt ceiling, thereby easing concerns over a blow to economic growth, at least for now. There were no significant negative developments in Europe during the month of January as policymakers largely maintained their positions and expectations about future negotiations to solve the fiscal crisis, even as the region's economic conditions remained fragile.

After the strong gains towards the end of last year, emerging markets have underperformed so far this year. Fourth-quarter GDP growth data for Asian economies released so far have mostly been positive. The Chinese economy expanded at a faster-than-expected pace during the last quarter, helped by higher domestic spending and investments. Higher demand from China also helped other countries in the region, such as Taiwan and the Philippines, to report better-than-forecasted growth rates for the fourth quarter.

For the month of January, manufacturing output data in Asia also showed no evidence of slackening, suggesting that the recovery that started during the second half of last year remains intact. In Europe, while the aggregate output continues to contract, the manufacturing sector showed signs of improvement in January as business sentiment across the region turned more optimistic. The unemployment rate in the eurozone appears to be stabilizing, though it remained at record levels in December.


Near-term outlook

The unexpected fourth-quarter contraction briefly heightened concerns about the health of the US economy, one of the key pillars of the ongoing global recovery. However, the decline was mostly due to a steep fall in government spending on defence, lower inventory gains, and weaker-than-expected exports. On the positive side, growth in consumer and business spending exceeded expectations, despite the uncertainties that surrounded the fiscal cliff negotiations as well as the adverse effects of Hurricane Sandy.

US manufacturing activity expanded further in January, while consumer confidence surveys suggest the payroll tax hike has not made a big dent on sentiment. Job gains for the month of January were healthy, even after the significant upward revisions in job additions for earlier months, suggesting the housing sector recovery has lifted construction employment. These positive trends in the US augur well for the growth prospects of several leading economies in Asia and Latin America, especially since European demand continues to be restrained.