Consensus estimates for global growth in 2017, which stand at 3.3% as of April 2016, have also been moving lower over the past six months (the 2017 estimate stood at 3.4% in October 2015) and since the start of 2015 (3.7%) when 2017 estimates were first compiled by Bloomberg. Here again, this should neither surprise nor concern global investors, as global growth estimates are almost always revised lower over time. Indeed, as Figure 3 points out, consensus estimates for global GDP growth have been consistently revised lower since at least 2010.

SEVERAL FACTORS ARE CONTRIBUTING TO REGIONAL DIFFERENCES IN GROWTH ESTIMATES

The U.S., China, the Eurozone, and Japan account for nearly two-thirds of global economic activity. So while there have been some upward revisions to consensus GDP growth estimates for 2016 and 2017 in places like Turkey, India, and Poland, major downward revisions to 2016 and 2017 growth estimates in Russia, Brazil, and Indonesia were offsets to overall global growth estimates. On balance, growth in the U.S., China, the Eurozone, and Japan matters most.

U.S.: tracking to above-consensus 3.0%+ growth. Estimates for U.S. GDP growth for 2016 stand at 2% here in mid-April 2016, while the consensus estimate for 2017 is at 2.3%. Both the 2016 and 2017 estimates have dropped versus the estimates made six months ago and a year ago. We continue to expect 2.5–3.0% GDP in 2016.*

China: still struggling with transition to consumer economy. The consensus expects China to report 6.5% GDP growth in 2016 and 6.3% in 2017; much like global growth estimates, the consensus estimates for Chinese economic growth have been moving lower for years. Although China’s economy has been slowing since 2010, the recent pace of the slowdown has captured the market’s attention as fears of a “hard landing” (real GDP growth around 2%) persist. Chinese authorities have continued to struggle to implement the correct mix of monetary, fiscal, currency, and regulatory policy to help guide China’s economy from an export-led manufacturing economy to a more domestically oriented consumer economy.
The consensus expects a 6.7% year-over-year reading for China’s first quarter 2016 GDP (which is due out later this week).

Eurozone: steady but slow. The Eurozone’s GDP growth prospects for 2015 and 2016 were revised higher over the course of 2015, and have stabilized here in 2016. Actions by the European Central Bank (ECB) to enact quantitative easing (QE) in early 2015, followed by an expansion of QE here in early 2016, have helped to heal Europe’s fractured banking system; however, the current threat of the U.K. leaving the European Union has added to the economic uncertainty. Currently, the consensus expects 1.5% GDP growth in the Eurozone in 2016, accelerating to 1.6% in 2017. The estimates for 2016 and 2017 are little changed from where they were six months ago and in early 2015.

Japan: 2016 prospects fading. Of all the major global economies, Japan has seen its growth prospects for 2016 marked down the most over the past year. A year ago, in April 2015, the consensus expected 1.2% GDP growth in 2016. Today, the consensus stands at just 0.6%, as the Japanese economy has not responded as well as expected to several rounds of stimulus from the Bank of Japan. In addition, deteriorating demographics and large public debt levels are expected to continue weighing on Japanese growth in the coming years and decades.

*Our forecast for GDP growth of between 2.5–3% is based on the historical mid-cycle growth rate of the last 50 years. Economic growth is affected by changes to inputs such as: business and consumer spending, housing, net exports, capital investments, and government spending.

John Canally is chief economic strategist for LPL Financial.

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