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Global Economy Booming

An analysis of International Monetary Fund forecasts for individual countries’ real gross domestic product year-over-year growth from 1980 out to 2021 reflects that the global economy has “never been in better shape”
Oil, copper and niche metals such as cobalt all shot to multiyear highs in recent weeks, buoyed partly by the strongest and most widespread global growth since the financial crisis.Oil, copper and niche metals such as cobalt all shot to multiyear highs in recent weeks, buoyed partly by the strongest and most widespread global growth since the financial crisis.

Global economic health has never been more robust, as the number of countries in recession has fallen to the lowest level in decades, according to a new report from Deutsche Bank.

An analysis of International Monetary Fund forecasts for individual countries' real gross domestic product year-over-year growth from 1980 out to 2021 reflects that the global economy has "never been in better shape," said Torsten Slok, Deutsche Bank's chief international economist, CNBC reported.

"We have never seen a smaller number of countries in recession as we do at the moment; and if you look ahead to the next few years ... we are going to see that fall even lower," Slok said on CNBC's "Trading Nation".

Ultimately, the IMF's global growth forecasts are in line with Slok's, with slim odds of a global recession ahead. The data he examined reflected that the Group of Seven countries (a grouping that includes the US, Japan and Germany) and G-20 countries, which includes China, the US and France, are in overall healthy shape, Slok said.

Still, he doesn't believe this promising outlook justifies various equity market valuations around the world. "In our forecast, we do expect growth to continue, and to look strong. So in that sense, that's not to say necessarily that stock market valuations are justified, but our measures are very clear that we cannot see a global recession on the horizon," Slok said.

Inflation the Biggest Risk

At this point, the biggest risk to the global recovery in the wake of the financial crisis is inflation, which has been tepid in the US and is expected to be quite low into next year, he told "Trading Nation".

"The biggest risk to all of this is that we do start to see inflation pick up, and therefore the Fed having to raise rates faster than what the market is expecting," he said.

"If there is no recession on the horizon, and if there is no sign that the US, or Germany or Japan or China is about to slow down in a significant way, what could then stop the rally? What could then be the real trigger for turning things around? I think that the irony of all this is that the risks are not so much of a recession; the risk that we are facing in the markets today is there's a significant bigger risk of overheating," he said.

Industrial Commodities

Industrial commodities are on a tear. Oil, copper and niche metals such as cobalt all shot to multiyear highs in recent weeks, buoyed partly by the strongest and most widespread global growth since the financial crisis.

The move, which has seen Brent crude top $60 for the first time in two years and copper pass $7,000 last month, has been accompanied by renewed interest from investors and hedge funds who had largely abandoned the sector during a brutal slump over the past three years.

Now, with growth picking up and commodity markets tightening due to under-investment and producers’ attempts to rein in output, some industry executives and analysts say funds are again treating commodities as the go-to assets to profit from global growth.

They caution, however, that while the commodity cycle appears to be turning, this is not a repeat of the so-called “supercycles” that propelled oil and metals to record highs last decade, as China’s rapid industrialization caught the industry napping.

 

Upswing Trend

“We are in the upswing of a classic commodity cycle but this time—while demand is strong—it is being driven by supply constraints rather than a sudden surge in consumption that the industry just wasn’t ready for,” said Julian Kettle, vice-chairman of metals and mining at Wood Mackenzie.

“The last five years there has been under-investment in metals and to a certain degree energy and, while supplies are relatively comfortable, investors are starting to see that producers are risking storing up problems for the future.”

The issue, analysts say, is that miners and oil producers were so badly burnt by the commodity crash that they have pulled investment from new projects during the downturn.

While demand is not soaring at the rate it was last decade, it is now expanding quickly enough to provoke concerns about future supplies, drawing in investors who want to tap into global growth and to have a possible hedge against rising inflation.

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