U.S. economy grows alone … China, Euro Zone, Japan stagnate

Stronger U.S. dollar, risks of higher interest rates… Emerging market recession worries

The US economy is driving the global economy.

In our last post, we reported on the UK’s recession, Japan’s falling GDP ranking, and more. The U.K. has posted two consecutive quarters of negative growth. As of the second half of 2023, wage growth in the U.K. outpaced inflation for the first time in two years, but consumer spending fell.
Conversely, Japan is experiencing higher prices than incomes, which has led to a decline in consumer spending.

The OECD expects the U.S. economy to grow by 2.1% in 2024, while the U.K. is expected to grow by 0.7% and Germany by 0.3%.

The U.S. Economy’s Solo Boom: What’s Wrong?

Stronger U.S. dollar, higher interest rates… emerging economies with dollar debt to deal with

Most of the world’s major economies are in recession or slow growth.
China is experiencing a real estate slump, and the Chinese stock market has been falling for about three years. At a time when most countries are experiencing inflation, China is experiencing deflation and is actively considering stimulus programs.
The UK is in recession, Germany’s economy is contracting, which could have a low-growth, recessionary impact across the Eurozone, Japan is also in recession, and the Japanese yen has lost its third place in GDP to Germany.

Inflation, economic growth and a high interest rate environment in the U.S. … could add to EM debt burdens.
According to IMF analysis, a 10% appreciation of the U.S. dollar could reduce EM growth by -1.9%, with adverse effects on the overall economic and financial environment.

U.S. economy sees relatively high growth prospects… unlikely to be sustainable

Given that the U.S. economy moves with the global economy, not just within the U.S., many analysts believe that relatively high economic growth is unlikely to be sustained for long. In other words, relative growth is unlikely to be sustainable. It’s worth recalling that recently, we’ve seen deteriorating profits and declining sales expectations, especially among U.S. small and medium-sized businesses, and that Americans are carrying higher credit card balances and lower savings rates. It’s important to keep in mind that the U.S. economy’s growth in isolation is far from robust.

In a period of relatively strong growth, U.S. equities, especially large-cap and technology stocks, should be able to continue to outperform. However, if the U.S. economy does experience a correction, small- and mid-cap, equal-weighted ETFs may come into focus.
Keep in mind that in the long history of US equity markets, there have been times when certain large-cap stocks have dominated the market, but there have also been times when most sectors and stocks have been evenly represented 🙂

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