Global Economic Outlook

With a weak start to the year and a modest rebound in April it is expected to be another year of below trend global growth. Consequently the end of year forecasts are slightly below last year’s 2.7% (GDP based on current fixed exchange rates).

Having said that, despite the US economy’s quarter ‘1’ contraction, recent data and surveys indicate a more robust consumer-led rebound is underway.

Growth is slow in the Eurozone, but improved economic conditions should allow a faster pace of growth to be sustained by year end.

Although UK Quarter ‘1’ GDP was unrevised at 0.3% per quarter (1.2% per annum rate), estimates now reveal potential healthy growth in final domestic demand driven by business investment.

Following several months of continuously disappointing economic reports, estimates for Japan reveal Quarter ‘1’ GDP was reported at a far stronger 3.9% per annum growth rate. It is thought that this pace will be difficult to sustain for the remainder of the year and the full year estimate is 0.9%.

Recognition of the need to stabilise and then stimulate growth in the Chinese economy has resulted in the authorities injecting further fiscal and monetary policy support. The 7% GDP growth target appears increasingly ambitious though.

Emerging markets are still suffering from economic slowdowns in China and the US and recessions in Russia and Brazil. Parts of Asia have succumbed to slower growth also with many countries revising lower growth figures for the end of 2015.

Previously deflation worries are now giving way to inflation concerns, especially in the US and Eurozone following recent rebounds. Core inflation forecasts in most major countries have remained fairly steady and this provides a much clearer guide to underlying inflationary trends.

Financial Market Outlook

As US economic data has improved it is thought that September 2015 will be the date for the first interest rate rise with 0.25% rises now priced-in for each quarter thereafter through 2016.

Interest rate rises in the UK is likely to be delayed until Quarter ‘1’ 2016 while, in the Eurozone, quantitative easing has only just begun.

There is volatility in fixed income markets, particularly in main market government bonds. Corporate Bonds still offer moderately better value than governments at present.

UK commercial property capital value growth has decelerated. But this is a slowdown not a downturn and underlying conditions should show further capital and rental growth.

With the equity bull market cycle maturing, investors must expect more volatile equity markets. Some uncertainties could undermine shorter term returns and a correction in the markets is a possibility. However, the global backdrop shows signs of future success and market indicators suggest we have not yet reached the top of the equity market.

Japan and Europe are preferred areas for investment on a medium term view. However, Europe is very much dependant on finalising the bail-out deal with Greece and if this is not favourable volatility in markets could be experienced.

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Please note that the above article does not constitute financial advice.