In this month’s regular update on global economic activity, the Fulcrum nowcasts have once again identified extremely strong growth rates, especially in the advanced economies. These results continue to suggest that the global economy is expanding at the fastest rate seen since 2010, with the implication that the expansion may be reaching escape velocity, where it is no longer in need of emergency support from the central banks or fiscal authorities.
However, our models have been greatly affected in recent months by the remarkable strength in business and consumer surveys. Hard economic data have also improved, but have done so by less than the surveys. This has led to doubts about the reliability of the nowcasts, especially in the US, where the official real GDP growth rate in 2017 Q1 seems likely to be well below 2 per cent for the second successive quarter.
The sluggishness of US growth based on the official GDP data is clearly influencing the Federal Reserve, which has made no upward revision to its growth forecasts in the past few months, despite the surge in the nowcasts. Furthermore, it may also have influenced the financial markets, which are starting to have doubts about the “reflation trade” in global markets.
Given the extremely large difference between surveys and hard data at present, it is important to consider which of these sources of evidence is likely to be giving the correct signal on the current pace of the global expansion. Based on past evidence, we continue to give considerable weight to the buoyant surveys, even when they conflict with the relative weakness of hard data.
A second question is whether the extremely buoyant growth rates identified by the nowcasts can be maintained into the future. The models expect these elevated growth rates to decline somewhat over the rest of 2017, but growth seems likely to remain well above trend in the AEs, with plenty of scope for upward revisions to consensus GDP forecasts.
My colleagues Juan Antolin-Diaz, Thomas Drechsel and Ivan Petrella have released a technical paper about the use of hard and soft data in nowcasting – see the latest draft attached here. The latest monthly set of Fulcrum nowcasts is attached here. Read more