Economies around the world are recovering at varying speeds. Six months ago we reviewed the state of the global economy and pointed out a two speed recovery, with emerging markets growing faster than the advanced economies.
But as the state of the global recovery evolves we are seeing the US gradually break away from the pack of countries that are growing slowly, giving rise to a three speed world economy.
In this next phase of the recovery, we are projecting the US will be in the middle lane of growth, expanding by around 2% and driving forward G7 economic growth.
Emerging markets are projected to continue to be in the fast lane of growth. Our analysis suggests their output could be growing three times as fast as the G7 economies, as evidenced by the recently released Chinese GDP data.
The Eurozone is projected to remain in the slow lane, with its output contracting for a second consecutive year. In the opinion of the former President of Cyprus, this is partly because of the institutional gaps in dealing with the link between a weak banking sector and governments.
Finally, this month we’ve focused on the equity markets, which in the case of the UK and the US have breached their pre-crisis levels. The shift in the focus of the major central banks from inflation, to growth, has helped minimise volatility, improve sentiment and boost returns in most major indices.
However, our analysis of the link between equity markets and the real economy suggests in some cases, businesses could be disappointed as stock exchange are not always leading indicators of more buoyant economic activity.