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Macroscope | The US leads the economic pack – here are three reasons why it won’t last
David Kelly says the US has outperformed Europe and Japan in the first quarter and probably will again in the second, but its fading fiscal stimulus, monetary tightening and dwindling labour supply mean a contraction is coming
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Marathon running is not much of a spectator sport, but the key contest is usually between a hare and the pack. Can the hare hold on to the lead or will the strain of running from the front prove too much, allowing the pack to reel the hare in?
In the global economic marathon, the United States has broken away from the pack in the first half of 2018.
Economic growth in the first quarter, at 2.2 per cent annualised, was above the 1.5 per cent achieved in the euro zone and the minus 0.8 per cent seen in Japan. While growth in Europe and Japan should rebound in the second quarter, real GDP growth in the US could surge even more, jumping to over 4 per cent annualised and maintaining a sizeable US lead. In addition, US growth should look good relative to many emerging markets – while China and India continue to see strong growth, Turkey, Argentina and Brazil are in varying degrees of distress.
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In financial markets, the S&P 500 has now risen 3.9 per cent in the year to date, delivering a healthy total return of 4.8 per cent when dividends are included. This contrasts with small declines in European and emerging market equity indices.
Last year, international economic growth accelerated, the US dollar fell and international equity indices generally beat their US counterparts. However, this year, the US hare has broken away from the pack – the question is: can the hare maintain its lead?
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