GAUGING GLOBAL GROWTH

AN UPDATE FOR 2015 & 2016

Weekly Economic Commentary

by John J. Canally, Jr., CFA Chief Economic Strategist, LPL Financial 

The market continues to expect that global gross domestic product (GDP) growth will accelerate in 2015, 2016, and 2017, aided by lower oil prices and stimulus from two of the three leading central banks in the world. The prospect for another year of decelerating growth in emerging markets remains a concern for some investors, who may still be waiting (in vain) for China to post 10–12% growth rates as it consistently did during the early to mid-2000s. The likelihood of rate hikes in the U.S. in late 2015 and the U.K. in early 2016 is also a potential growth headwind. Still, much stimulus remains in the system, and more is likely from the Bank of Japan (BOJ) and the European Central Bank (ECB), which may help bolster growth prospects in two key areas of the globe. Although China is unlikely to embark on quantitative easing (QE), Chinese authorities have recently enacted a series of targeted fiscal, monetary, and administrative actions aimed at stabilizing China’s economy in 2015 and beyond, and more such actions may follow.

The outlook for global growth matters to investors because it defines the ultimate pace of activity that creates value for countries, companies, and consumers.

1 GLOBAL GDP GROWTH HAS BEEN A GOOD PROXY FOR CORPORATE REVENUE GROWTH

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WHY GLOBAL GDP GROWTH MATTERS

The outlook for global growth matters to investors because it defines the ultimate pace of activity that creates value for countries, companies, and consumers. As investors begin to digest the S&P 500 earnings reports for the second quarter of 2015 (more than 40 S&P 500 companies will report second quarter results this week, with another 300 set to report in the final two weeks of July), we provide an update on how consensus estimates for economic growth for 2015 and 2016 — in the United States and worldwide — have evolved over the past few years, and how they have been impacted by Greece, China, oil prices, the stronger dollar, and Federal Reserve (Fed) expectations. We’ll also look at how global growth estimates are tracking for 2017.

In recent years markets have focused more on global GDP growth, whereas in the past, prospects for U.S. economic growth garnered the most attention from market participants. Why does global GDP growth matter?

Read the Full Report here: Economic Commentary 07132015