It’s not fashionable but I really think that “Growth Beckons” is the story – rather than the inflation, stagflation, recession mantra that’s been drummed into our heads from pillar to post, noon to night. From here that din almost sounds like irrational pessimism.
A lot depends on context for sure – is growth slowing from 2021 levels – absolutely - but will 2022 GDP growth be slower than the 5 yr. pre Covid average (2015-19) in the US and in Europe – absolutely not.
The US 5 yr. average was 2.3% real GDP growth, for Europe it was under 2%. In contrast, 2022 US GDP is expected to be somewhere around 3% with the Fed at 2.8% and consensus at 3.5%. 2023 GDP is expected around 2.9%. The ECB forecasts 2022 European GDP growth at 3.7% with follow on GDP growth of 2.9% next year.
In Asia, China is expected to grow around 5% – 5.5% this year while Japan is forecast to grow close to 3% with similar growth rates for both expected in 2023. That would mark Japan’s best growth in a decade.
Thus growth, both real & nominal, is likely to be well above pre Covid trend rates across the bulk of the global economy over the next two years yet earnings are expected to be single digit in the US and Europe this year – a very low bar. Importantly, real rates remain deeply negative and are likely to remain negative for the next several years across the US, Europe & even Japan.
As regular readers know, here at TPWA we expect growth to continue to surprise to the upside in the out years as well, contrary it seems to just about everyone on the planet.
But what about the war in Ukraine & surging energy prices, Covid’s assault on China, raging US inflation and a Fed intent on wrestling back into its cage – aren’t these all growth killers? Amidst all the talk of deglobalization, lets use our Tri Polar World (TPW) framework to assess each of the three main regions.