Simon Kennedy London
The US and China, the world’s traditional twin sources of growth, are planting seeds to lift the world economy from its slowdown.
Among the green shoots indicating faster expansion are stronger housing demand and hiring in the US and accelerating factory output and retail sales in China. Responsible for a third of the world economy, the two countries are now providing ballast internationally as Europe and Japan stagnate.
“China and the US are both improving, which is extremely good news,” said Goldman Sachs Asset Management chairman Jim O’Neill.
The rebound’s endurance may depend on whether authorities can clear a fog of doubt surrounding policy. US legislators are debating how to curb $607 billion (R5.4 trillion) in automatic tax increases and spending cuts by the end of the year, while a once-in-a-decade leadership shift in China may raise questions about its direction. Elsewhere, Europe’s crisis fighting remains erratic and Japan faces its own fiscal and political dilemmas.
“Policy uncertainty is affecting business confidence, delaying capital expenditure especially in the US,” said Tim Drayson, a global economist at Legal & General Investment Management in London and a former UK Treasury official. “The potential if we get a resolution of some of these issues is a release of pent-up demand.”
Confidence in the economic outlook was highlighted by a survey of fund managers released on Tuesday by Bank of America Merrill Lynch. Global growth expectations were the most optimistic since February last year and the outlook for China’s economy surged to a three-year high.
For the first time in seven months a majority said profits will improve rather than deteriorate. More investors said companies should use idle cash to grow and increase capital spending rather than repair balance sheets or buy back shares. A net 37 percent of asset allocators said they were overweight in global emerging-market equities, up from 32 percent last month.
Strategists at Aviva Investors Global Services said more expansive monetary policies meant they attached a 65 percent probability to the world economy enjoying “better days” over the next six months with only a 20 percent chance growth stalls. – Bloomberg