As World Economies Expand Together, How Long Can It Last?

What’s unusual about the global upturn currently is that it is indeed global, with decent growth in the U.S., Europe and China

By Richard Barley

A newly assembled Toyota Motor Corp. Tacoma pickup truck moves through final inspection on the assembly line at the company's manufacturing facility in San Antonio. Photo: Luke Sharrett/Bloomberg News

Global growth has been unusual lately. It has been surprisingly global—without a major malfunction in a really big economy. This is welcome news for investors, but the balance is also a fragile one.

A broad uplift in activity has become a rare sight in the post-financial-crisis world. After an initial sharp bounce after the financial heart attack of late 2008 and early 2009, growth has been patchy and uneven. If it wasn’t the eurozone debt crisis, it was the emerging-market slowdown led by China or the collapse in oil prices that shook commodities producers. Even in countries not overly exposed to these problems, like the U.S. and U.K., growth has been tepid.

But in the past year, the global economy appears to have picked up steam. Economic data is surprising to the upside: Citigroup’s economic surprise indexes for both developed and emerging-market countries have risen together into positive territory. On Wednesday, the J.P. Morgan global manufacturing purchasing managers index came in at 52.7 in January, pointing to continued expansion and matching December’s 34-month high. The eurozone PMI hit a 69-month high, compiler IHS Markit said. The Institute for Supply Management reported U.S. factory activity accelerated to its fastest pace in more than two years in January.

This picture could yet be disrupted, however. Political risk is on everyone’s watch-list, as the new U.S. administration gets going and Europe eyes a heavy election calendar. Globalization is under question, and protectionism is a concern. Even stronger U.S. growth wouldn’t necessarily be an unalloyed good news story: by pushing up the dollar and U.S. rates, it could create renewed headwinds for emerging markets.

Markets have swung from deflation fears to embracing reflation, which started before U.S. President Donald Trump’s November election win. But they are now pumped up both by the legacy of many years of ultraloose monetary policy and hope for future growth. That is as much a cause for caution as celebration.

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