According to analysis by Standard Life Investments, the US economy looks to be in the middle of its cycle, showing few signs of a recession in the near future.
“At present, our modelling implies that the probability of a recession is low across the major economies on a three-month, one-year and two-year horizon,” the report said.
“This reinforces our conviction that the global economy will grow modestly above trend through this year and next, and that now is a good time for investors to be extending their horizons.”
Standard Life Investment’s business cycle indicators also show that different national economies are at different stages of their economic cycle than others, with the US cycle “closer to middle-aged” than mature, as often believed.
Germany proved to be more advanced in its cycle than the US, but other European countries such as Spain, France and Italy were further behind in their cycles “with ample spare capacity”; similarly, Brazil and Russia were at the earliest stages of their cycles, having recently emerged from their respective recessions.
The UK cycle did not experience major interruptions from Brexit as feared, and demonstrated strong growth “in the second half of 2016 and slowing only modestly so far in 2017”.
China was identified in the report as difficult to gauge, given the political sensitivity surrounding release of data as well as heavy government intervention.
Report author and SLI senior global economist James McCann also warned against complacency as there still remained some degree of uncertainty regarding the “turning points” in cycle and recession factors.
“Although monetary and financial factors are easy to capture in our framework, geopolitical factors are not,” he said.
“Overall, these tools make us confident that we can use them to assist with our asset allocation process over the course of an economic cycle.”
