We see slow global economic growth ahead, but we don’t expect it to be as soft as consensus estimates. Why? Our new BlackRock Macro GPS indicator implies positive growth surprises may be on the horizon, as evident in this week’s chart.
The blue line in the chart above shows consensus estimates for G7 gross domestic product (GDP) growth over the next 12 months. Our GPS indicator (the green line above) represents where consensus estimates could be in three months’ time. The GPS suggests current consensus growth estimates may be too pessimistic, potentially helping underpin investor risk appetite.
Tracking growth surprises
The BlackRock Investment Institute’s research team led by Jean Boivin and BlackRock’s Scientific Active Equity team co-developed the new Macro GPS to gauge how growth expectations could develop over the next three months—a key driver of financial markets. “Nowcasting” models for estimating GDP generally use traditional macroeconomic data. The GPS goes further by also incorporating big data insights, from Internet searches and corporate conference call transcripts to traffic patterns.
Country-specific GPS indicators show the recent deterioration in consensus expectations may have gone too far in the U.S., Japan, Germany and Italy. This suggests potential upside surprises. The UK GPS implies that UK growth expectations should stabilize, with weakness in the big data component offsetting stronger traditional indicators. Overall, the G7 GPS has softened since June’s Brexit vote, but it shows the global recovery should grind on with better-than-expected, if still-sluggish, growth.
Bottom line: Growth surprises could provide a boost to risk appetite in the months ahead, keeping a 2016 Fed rate increase in play. That could also lead to higher long-term Treasury yields and a steeper yield curve. We prefer credit over duration. Read more market insights in my Weekly Commentary.