The global economy remains in the strong, synchronised upswing that has now been in place for almost two years. The latest Fulcrum nowcasts show no sign of any major slowdown in the global growth rate, which remains around 4.5 per cent, almost a full percentage point above its long term trend. Among the major blocs, the advanced economies are continuing to record growth rates that are, remarkably, 1.7 percentage points above trend, while the emerging markets are hovering around trend. 

The recent surge in global growth is mainly a cyclical demand phenomenon, which has so far had only a moderate impact on long term sustainable growth. Although this implies that excess capacity in the world economy is now being absorbed fairly rapidly, there has been very little, if any, increase in underlying core inflation, which remains stubbornly low in the major advanced economies. Headline inflation has risen slightly, because of rising oil prices, but this will not be of any great concern to the central banks. Nor, in itself, should it be of any great concern to the markets.

Based on incoming economic data, the world economy (and asset markets) are therefore still in a regime that we have named “global expansion”, rather than “global reflation” because core inflation remains so subdued. The mix between real output and inflation in nominal economic activity is still extremely healthy: