We would like to elaborate on the currently popular topic of whether developed economies and stock markets are about to decline, which some economic pundits are prognosticating. Global economic growth seems to have decelerated lately: the U.S. GDP posted a paltry 0.1% growth in 1Q/2014 over 4Q/2013 and China’s grew at its slowest pace in 18 months, by 7.4% in 1Q/2014 from a year earlier.
With the U.S. economy’s growth in 2013 at just 1.9% and Canada’s at 2.0%, this looks like a continuation of a very slow recovery. In fact, according to RBC Capital Markets, this is the slowest recovery in the post-WWII period in the U.S. The domestic economy is not doing much better: for 2014, the Bank of Canada expects that Canada’s GDP will rise by a moderate 2.3%.
In the previous blog, we looked at several indicators such as bond yield curve, capital spending and level of unemployment, and found that they are all far from the levels that would set off alarms about an imminent economic downturn in the U.S. There are a number of other indicators that indicate an anemic picture. An economic drop would follow a period of accelerated inflation, while currently our central bank expects that inflation in Canada will remain below its 2% target for at least another two years. Another indicator of economic activity, housing starts, is sluggish in both Canada (came in below 190,000 units in March, for the first time in six months) and the U.S. (lower by 5.9% over a year earlier in March). Therefore, it appears that indicators are pointing towards slow growth, rather than an outright economic decline.
By: Ukrainian Credit Union Limited
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