George Lucas

Global economies seem set for another year of moderate growth, with the exception of USA, which is likely to outperform its global peers in 2015, says investment manager George Lucas, at Instreet Investments.

Equity markets around the world have been subdued the past few weeks.

“Preliminary PMIs for May, published last week on Thursday, support the view that global growth is likely to pick up a bit this quarter but remain unspectacular,” he added.

“However USA is likely to outperform its global peers in 2015. The US Federal Reserve should begin raising rates later in the year, perhaps helping the dollar to appreciate further.”

“The USA did experience a slowdown in Q1, however we think the main causes of this will prove to be transient. In any event, the three-month annualised rate of core inflation hitting a four-year high of 2.6% in April leaves the Fed with less scope to delay raising rates.”

“The US Dollar also resumed its rally against the major currencies supported by signs of inflation and an accelerating economy.”

“The weighted average of Markit’s preliminary PMIs for the US, China, euro-zone and Japan was almost unchanged at 51.7. All this points to world GDP growth of 3 to 3.5% annualised, which is close to the average for recent years.”

“Meanwhile, PMIs for the euro-zone echo the message from other surveys that GDP growth in the region will slow slightly in Q2 from the 0.4% rate recorded in Q1. The composite PMI edged down although the manufacturing PMI gained some ground, boosted by the weaker Euro.”

“Looking at China, the sluggish economy is likely to regain some momentum in the coming months as the authorities have taken monetary and fiscal action to avert a sharper downturn.”

“We believe growth in Japan is sure to slow in Q2 as its strong performance of 2.4% annualised in Q1 was largely thanks to a one-off surge in inventories.”

“Against this backdrop, most central banks will persist with ultra-loose monetary policy.”

Lucas said that the recent uplift in consumer confidence in Australia, brought about by the Federal Budget, wasn’t enough to stem the drop in equities.

“Besides, we believe the reaction from consumers is temporary and we don’t expect households to be flocking to the shops – as they already have.”

“Likewise, a Budget-related increase in business confidence is unlikely to translate into faster investment. The budget has generated some good headlines for the Government, but at the end of the day the economy and job growth had already begun accelerating.”

The main data to watch out of Australia this week is the Q1 private capital expenditure survey on Thursday.

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