Why the US economy is doing so much better than the rest of the world
It happened again — the US economy defied yet another forecast in a big way.
Economists were convinced the last quarter of 2023 had to be the one where economic growth slowed significantly after the prior quarter’s gangbuster 4.9% annualized growth rate. Gross domestic product, the broadest measure of economic output, did slow last quarter to a 3.3% annualized rate. But make no mistake, as Larry David would say, that’s prettaaay, prettaaay good. It’s remarkable given economists were expecting 1.5% annualized GDP growth last quarter. It’s even more remarkable considering a year ago they were all but certain there’d be a recession by now and the economy would grow at a meager 0.2% rate.
But what’s perhaps most remarkable about the US economic growth rate is how much it towers over similarly sized advanced economies.
For instance:
- The combined GDP of the 20 countries that use the euro grew at an annualized rate of just 0.1% in the third quarter of last year
- The UK is growing at a 0.2% annualized rate, according to the latest GDP estimate from November
- Japan’s economy shrank by 2.1% in the third quarter of 2023 compared to a year prior
https://edition.cnn.com/2024/01/26/economy/us-gdp-other-countries/index.html?ref=aussienomics.com
Yes 1st quarter GDP for 2024 was less than last 1/4 2023, but....
Last quarter’s (first 1/4 2024) GDP snapped a streak of six straight quarters of at least 2% annual growth. The 1.6% rate of expansion was also the slowest since the economy actually shrank in the first and second quarters of 2022.
The economy’s gradual slowdown reflects, in large part, the much higher borrowing rates for home and auto loans, credit cards and many business loans that have resulted from the 11 interest rate hikes the Fed imposed in its drive to tame inflation.
Even so, the United States has continued to outpace the rest of the world’s advanced economies. The International Monetary Fund has projected that the world’s largest economy will grow 2.7% for all of 2024, up from 2.5% last year and more than double the growth the IMF expects this year for Germany, France, Italy, Japan, the United Kingdom and Canada.
Businesses have been pouring money into factories, warehouses and other buildings, encouraged by federal incentives to manufacture computer chips and green technology in the United States.
WASHINGTON, June 11 (Reuters) - The World Bank on Tuesday said the U.S. economy's stronger-than-expected performance has prompted it to lift its 2024 global growth outlook slightly but warned that overall output would remain well below pre-pandemic levels through 2026. The World Bank forecast global growth of 2.7% in both 2025 and 2026, a level well below the 3.1% global average in the decade prior to COVID-19. It also is forecasting that interest rates in the next three years will remain double their 2000-2019 average, keeping a brake on growth and adding debt pressure to emerging market countries that have borrowed in dollars.
U.S. BUOYANT
On the upside, the World Bank said that the U.S. could continue to surpass expectations, boosting global growth with lower inflation if elevated productivity and labor supply due to immigration prove persistent.
Draghi urges radical European Union reform requiring extra 800 billion euros a year
The bloc’s goals of bolstering its geopolitical relevance, social equality and decarbonization are being threatened by weak economic growth and productivity compared with the U.S. and China, the report states.
Equities excluding the US are tumbling, with an MSCI gauge at its lowest in three months. An index of developing-market currencies has lost more than 1% following the US election, coming close to erasing this year’s gains. European stocks and the euro have flopped.
The stark divide between US and non-US assets has become more pronounced as Trump’s cabinet starts to take shape, with loyalists ready to carry out his “America First” proposals named for key posts. That has confirmed the worst of investors’ fears: that the push for higher tariffs, particularly on China, will gain momentum, alongside a host of potentially disruptive policies that can drive inflation higher and bind the hands of central banks.
Such worries have prompted investors to park their money in US assets. Fund managers’ exposure to American stocks jumped to the highest since 2013, according to a survey from Bank of America Corp. On the other hand, emerging markets such as China and Mexico, often seen as the most vulnerable to Trump’s trade policies, have taken a hit.
https://finance.yahoo.com/news/global-markets-reel-trump-america-034031299.html
Talent flight to wealthier countries of the north is a problem Portugal shares with several others in southern and central Europe, as workers take advantage of freedom of movement rules within the trade bloc. Countries including Italy have tried other schemes to counter the flight, with mixed results.
Donald Trump’s victory in U.S. elections this month raises the stakes, with the risk of across-the-board trade tariffs on European exports of at least 10% – a move that economists say could turn Europe’s anemic growth into outright recession.
The US stock market has seen a record-breaking month, with the S&P 500 rising 5.7% in November, driven by optimism about President-elect Trump's trade policies and expectations of rate cuts and steady economic growth. In contrast, global markets have been sluggish, with Europe's Stoxx 600 gaining only 0.4% for the week and investors pulling money out of European and emerging markets. The US has dominated global markets for 13 of the past 15 years, and the momentum is expected to continue, with tech giants driving growth and Trump's policies expected to boost the economy.
https://finance.yahoo.com/news/us-stocks-skyrocket-while-global-194012707.html
'U.S. economy is outperforming the rest of the world even with still-high interest rates,' says DataTrek's Nicholas Colas
Treasury bond yields are clearly influencing how U.S. stocks behave this year relative to equities in the rest of the world, with the S&P 500 outperforming in 2024, according to DataTrek Research.
"Ten-year Treasury yields have been the most important driver of marginal global equity dollar-based returns this year," said Nicholas Colas, co-founder of DataTrek, in a note emailed Tuesday. "The relationship is clear," he said; when yields on the 10-year Treasury note rise or are stable, U.S. stocks outperform, but when they fall, "rest-of-world stocks do better."
Check out the latest podcast by David Stein for his take on the reasons for US vs Global performance: https://moneyfortherestofus.com/503-us-stocks-overhyped-expensive/
