Global growth is expected to come in below trend for the rest of 2015 and into 2016, however a major deceleration and recession will likely be avoided, says Standard Life Investments.
In a recent economic update, Standard Life Investments said a "softening rather than a stall in global growth rates" is likely to occur throughout 2015 and 2016.
Standard Life Investments said that although economic optimism is fading, there are a variety of reasons as to why global growth is likely to hold up.
“A significant proportion of the drag on global activity from declining investment in the oil and mining sectors has already occurred,” the investment firm said.
“Domestic demand in the advanced economies is holding up well at present, despite the difficult external environment.
“Even in emerging markets, we have begun to see some export readings stabilise after a number of awful readings through the first part of August.”
The update also argued that within China, government spending and bank lending are improving activity rates. The property sector is also showing signs of recovery.
Standard Life Investments said negative sentiment around global growth can be attributed to poor data out of the US. General consensus, according to the firm, was that a stronger US recovery would drive demand in other parts of the world.
“It is becoming increasingly clear that the US is being dragged down by cyclical and structural problems elsewhere, mostly through trade and financial linkages that have become ever more binding over time.”
According to the firm, activity data shows that the US is set to grow below two per cent for the third quarter of 2015, with the labour market also showing signs of strain.
“With global manufacturing sentiment in September falling to its lowest level since July 2013, and forecasts for global corporate earnings in 2016 set for meaningful downgrades over the next few months, it may be some time before investors get the positive data surprises for which they are crying out.”
Despite the slowing growth in the US, the investment firm remains on the side of optimism, indicating that a major deceleration in global growth will be avoided.
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