There continues to be widespread concerns about the global economy. Many are wary of a chronically disappointing recovery, reeling from the aftermath of another crisis de jour in Brexit and in a world which now boasts negative sovereign bond yields as commonplace.
Perhaps global growth fears are best illustrated by the unconventional, massively accommodative economic policies for the first time being employed in concert about the globe.
These panicky policy responses being employed not only in the U.S. but also by Japan, the Eurozone and China are fueling fears that the recovery is in trouble and the current surprising stock market run is simply a sugar high without any fundamental underpinnings.
However, we believe the first synchronization of economic policies in this recovery is likely to produce a rare global synchronized economic bounce. While the U.S. has persistently employed stimulus, other developed and emerging economic policies have often been in conflict. Today, though, Japanese policy officials are no longer hesitant but rather are implementing full-out Bernanke stimulus.
Likewise, the Eurozone, which earlier adopted fiscal tightening, is now also fully embracing central bank balance sheet expansion. Moreover, the oil crisis has forced energy-based economies like Canada and Australia, which earlier felt sheltered from many ongoing global struggles, to recently boost accommodation.
Finally, China is no longer attempting to moderate its recovery as it was until 2015 but rather is using all weapons (a collapse in its sovereign bond yield, a surge in the growth of its money supply and a more aggressive Yuan devaluation) to quicken growth. While few may expect it, economic policies around the world are finally attuned suggesting the odds of a synchronized global economic bounce may be far greater than widely perceived.
Indeed, a global economic upturn may already be underway. As illustrated by the enclosed chart, the Westpac Positive Surprise Global Index has surged since March to one of its best levels of the recovery. This index measures the percentage of global economic releases beating consensus estimates in the previous 8 weeks. Based on economic surprises, global economic momentum has changed quickly this year. In late February, this index was weaker than 94 percent of the time in this recovery.
Now, a few months later, most major economies have positive surprise readings and the overall global surprise index is better than 82 percent of the time. Perhaps because global economic momentum has improved so fast in recent months, most simply do not yet fully appreciate the change.