By Josh Zumbrun
For the first time in a decade, the world's major economies are
growing in sync, a result of lingering low-interest-rate stimulus
from central banks and the gradual fading of crises that over years
ricocheted from the U.S. to Greece, Brazil and beyond.
All 45 countries tracked by the Organization for Economic
Cooperation and Development are on track to grow this year, and 33
of them are poised to accelerate from a year ago, according to the
OECD. It is the first time since 2007 that all are growing and the
most countries in acceleration since 2010, when many nations
enjoyed a fleeting snapback from the global financial crisis.
The International Monetary Fund in July projected global
economic output would grow 3.5% this year and 3.6% in 2018, up from
3.2% growth in 2016.
In the past 50 years, simultaneous growth among all the
OECD-tracked countries has been rare. In addition to happening last
decade, it has only happened in the late 1980s, and for a few years
before the 1973 oil crisis.
"It's not a particularly fast or thrilling beat, more plodding
and methodical, but it's getting the job done," Josh Feinman, chief
global economist of Deutsche Asset Management.
The development comes, ironically, just as nationalist movements
in the U.S., Europe and beyond have gotten a new life, driven by
suspicion over global trade and finance. At the moment, the growth
pickup is lifting the fortunes of car makers in Japan, coal miners
in Indonesia and forklift makers in Germany. U.S. exports grew near
a 6% annual rate in the first half of the year, their best
two-quarter performance since the end of 2013 and outpacing the
average of the previous decade.
The episode could be undone if synchronized growth morphs into
overheating. As years of crisis have demonstrated, soaring global
stock prices or regional property markets could quickly turn to
financial mayhem that takes down economies. Moreover, central
bankers, gathering this week for the Federal Reserve's annual
conference in Jackson Hole, Wyo., could derail the upturn if they
pull back financial stimulus too aggressively.
For now, though, the global upturn appears on track, in part
because inflation is low and central bankers are moving
gradually.
Federal Reserve Chairwoman Janet Yellen and European Central
Bank President Mario Draghi, both speaking in Jackson Hole Friday,
can point to the global backdrop to justify plans to pull back
stimulus programs. The Fed is expected in September to begin
reducing $4.5 trillion in holdings built up over the decade to help
drive down interest rates and boost risk-taking by investors,
households and business. The ECB is nearing the end of its own
bond-purchase program.
"For the first time in many years, we are seeing signs of
synchronized economic expansions at home and abroad," said Fed
governor Lael Brainard in a speech shortly before the Fed's June
meeting. Ms. Brainard has been a leading voice of caution at the
Fed about interest-rate increases. Now she is supporting the Fed's
plan to shrink its securities holdings.
A wide range of factors are at play in the global upturn.
Among them, long-troubled eurozone economies, even Greece, show
signs of finally turning a corner. The OECD sees 1% growth for
Greece this year, not much but still the best in 10 years and
against a backdrop of falling unemployment. The country last month
successfully returned to the international bond market after having
been locked out since 2014.
Economic growth in the 19-nation eurozone outpaced the U.S. in
the first quarter of the year and kept pace in the second quarter.
Economic confidence is at its highest level in a decade, and
unemployment has fallen to an eight-year low of 9.1%. Growth has
broadened beyond traditional powerhouses like Germany and the
Netherlands: Spain notched its best growth performance in nearly
two years in the second quarter. France and Portugal are both
posting solid growth.
Jungheinrich AG, a German maker of forklift trucks, is
benefiting from a "very good recovery" in Spain and Portugal,
according to its chairman, Hans-Georg Frey. The firm, which makes
four-fifths of its revenue in Europe, recently reported a 14% rise
in net sales for the first half of the year. "We are looking
forward to a positive second half," Mr. Frey said.
In Italy, increased exports -- up 8% from a year earlier in June
-- have helped push the nation's trade balance into surplus.
Italian engineering firm CNH Industrial NV had seen its sales slide
by about a quarter since 2014, but the firm reported a 3% rise in
sales for the second quarter, to $6.9 billion, driven by strength
in Asia and Europe.
In many advanced economies, including the U.S., the aftereffects
off the financial crisis are finally fading. American households
have stopped paring back their debt exposures and started returning
to normal spending patterns. The fiscal stance in many advanced
economies has shifted from austerity to ease. And although the Fed
has begun to raise its target interest rate, most interest rates
around the world remain low and below inflation rates.
The world is also benefiting from a reversal from a global
commodity bust that began in 2014. New energy supplies, such as
from U.S. fracking, combined with soft global growth to send prices
plunging. Now, prices have firmed and investment is picking up.
After the commodities bust helped sink Brazil into its deepest
recession ever, it is now forecast to expand 0.3% this year and 2%
in 2018. The IMF's global price index for all commodities is up 27%
from the start of 2016, and Brazil's crucial iron ore has seen
prices rise 37% off their recent bottom.
That is feeding through to the rest of the economy. MRV
Engenharia e Participações SA, Brazil's largest builder of homes
for low-income families, has launched 21% more new projects in the
first half versus a year ago, said Chief Financial Officer Leonardo
Guimarães Correa. The country is "moving from a downward period to
a period of recovery," Mr. Correa said.
Indonesian conglomerate PT Astra International saw net profit in
its coal-mining subsidiary jump 85% during the first half of the
year, while its maker of crude palm oil booked a 26% year-on-year
increase in net profit. "For the rest of the year, we expect to
continue to benefit from the [higher] coal and crude palm oil
prices," said Yulian Warman, a spokesman for Astra
International.
While the global outlook has bolstered U.S. stocks, investors in
other countries have benefited even more: Indexes in Turkey, Hong
Kong, Argentina, Greece and Poland are all up more than 20% this
year, doubling the performance of the Dow Jones Industrial
Average.
"All the attention to the U.S. election was covering up how much
the rest of the world was improving," said Adolfo Laurenti, global
economist at the Swiss bank J. Safra Sarasin.
Japan's economy grew an annualized 4% in the three months
through June, lengthening its most recent stretch of growth under
Prime Minister Shinzo Abe to six quarters. Consumer spending is
helping drive growth; Nissan Motor Co. saw its Japan sales rise by
46% year-to-year in the June quarter thanks to the popularity of a
minivan equipped with autonomous driving tools.
U.S. companies with large international footprints are among the
big beneficiaries. Marriott International Inc., whose stock is up
23% this year, posted better-than-expected earnings this month on
the back of rising revenue around the world.
"We are very optimistic about the long term," said Arne
Sorenson, the hotel chain's chief executive, on an earnings call
this month. Revenue per available room "is increasing in most
markets around the world," he said.
The three other periods in the past 50 years with synchronized
growth saw the trend continue for a few years. In the end, however,
those expansions became overextended and ended.
Some signs of froth are popping up now, beyond soaring stock
prices. China relies increasingly on its property market for
growth. Despite the government's recent crackdown on speculative
home purchases, persistent demand for property has boosted
production and sales of construction material, furniture and other
items. Astronomical property prices are causing many consumers to
tighten their purse strings.
Yet broader inflation is low world-wide, which will give central
bankers an opportunity to proceed slowly in pulling back stimulus.
It will make for easier breathing in the thin air of Jackson Hole,
after years of crisis management and hand-wringing about the
prospects for the global economy.
--Tom Fairless in Frankfurt, Grace Zhu in Beijing, Luciana
Magalhaes in São Paulo and Megumi Fujikawa in Tokyo contributed to
this article.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
August 23, 2017 16:54 ET (20:54 GMT)
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