Want to know where stocks are headed? Keep an eye on the global economy


Following the Great Recession, the U.S. economy rebounded faster than the rest of the world, thanks in part to the rapid response from Congress and the Federal Reserve to boost growth.

Today, more than eight years later, the sluggish U.S. economy has given pause to some stock market investors who wonder how much longer the ongoing economic recovery will continue.

But while the recovery in much of rest of the world lagged the U.S., most of the global economy is now seeing a delayed response to measures taken to boost growth. Those include aggressive moves by central bankers in Europe and Japan to keep interest rates low, even as the U.S. Federal Reserve has reversed its easy money policy.

“It’s very easy to overlook the fact that the other two economic zones are in a very different place in terms of the monetary policy cycle,” said Paul Sheard, chief economist at S&P Global.

That boost to global growth is increasingly important to U.S.-based companies, which generate a bigger share of overall sales outside the U.S. than they did a decade ago. In some sectors, including energy, materials and information technology, more than half of all corporate revenues come from outside the U.S.

Over the longer term, the aging populations of the developed world threaten to reduce the growth potential of their economies.

Following the Great Recession, that growth slowdown from Europe to China to Japan weighed on the global profits of American companies. As the U.S. recovered, those economies remained weak, with higher rates of unemployment and slower gains in consumer spending.

Now, as the recoveries of those weaker economies finally kick in, they may be able to grow faster, Sheard said.

“If there is slack in an economy, then in the process of eating into that slack you can grow above the longer-term potential growth rate,” he said. “And I think we’re seeing it in those economies.”

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