Thursday, March 18, 2021
Last week we reviewed updated global economic growth forecasts from the Organisation for Economic Co-operation and Development (OECD), highlighting the significant increase in their gross domestic product (GDP) forecast for the United States this year. Clearly the Federal Reserve (Fed) 2021 is reading from the same playbook because they did the same thing yesterday.
Here we look into another set of OECD data points but this time its global leading indicators. As we have noted with the US version from the Conference Board’s Leading Economic Index, we believe these indicators can provide useful insight into where economies may be headed in the near term.
As you can see in our LPL Chart of the Day, leading indicators in Asia and the United States are pointing to better growth than in Europe. The global growth outlook is no doubt improving, but the recovery is multi-speed.
“Global growth should continue to steadily rise as economies reopen and vaccines are deployed, consistent with the message from global leading indicators” according to LPL Financial Equity Strategist Jeffrey Buchbinder. “When we peel back the onion, we see a stronger picture in the United States and Asia, while Europe is more of a mixed bag. That reflects frustratingly slow vaccine distribution in the Eurozone.”
The level of these indicators provide a valuable comparison across countries and regions. We also like to look at the momentum of these indicators to identify areas where the picture is getting better. On the chart below, you can see that the strongest momentum is found in Asia, particularly India and China, and the United States. Meanwhile, Japan is holding its own.
On the flip side, the growth outlook in most European economies has stalled, particularly in the United Kingdom. While the paused rollout of the AstraZeneca vaccine is part of the problem across Europe, we expect a strong vaccine program in the UK to help turn its economy around soon despite the country’s below-average LEI level and deteriorating momentum.
We continue to recommend investors focus their regional allocations on the United States and the Asia-heavy emerging markets. Global LEI data and the pace of vaccine distribution reinforce that positioning, as the global but multi-speed economic recovery from the pandemic continues.
More risk tolerant investors may want to consider a tactical allocation to Japan, where appropriate, given the country’s relative success containing COVID-19 and bold stimulus efforts.
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All index and market data from FactSet and MarketWatch.
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