The OECD issued its biannual report Wednesday, indicating global recovery is on track but threats remain. Given recent global economic news and the fact we can’t think of an economic era devoid of risks, this is not a particularly shocking conclusion. But some of the report’s details are interesting. For example (and no surprise to us), the US is currently helping keep global growth on track—the OECD raised 2011 US growth expectations to 2.6% from 2.2% last November. Given the pervasive sense the US is in the economic doldrums with no end in sight, this may surprise some folks.
Also interestingly, the OECD raised its 2011eurozone’s growth outlook to 2.0% from 1.7% in November. As with the US, many have feared dire consequences of eurozone debt woes—and though the OECD cites those risks, they still see growth outweighing negatives at this point. Seems fair enough to us.
Among the other risks the OECD mentioned are Japanese sluggishness, especially as it affects supply chains for other global producers; a bigger-than-expected Chinese slowdown; and persisting US debt and deficit debates. But these aren’t ground-shaking new developments—we’ve discussed many of them over the last couple months. But since the OECD maintained its outlook on global growth while increasing the US and eurozone forecasts, it seems the OECD perceives the risks to be fairly benign thus far.
Beyond the details, there are a couple important things to take from the OECD report. First, the OECD is hardly a perfect predictor of growth, so there’s always the chance they’re wrong (for better or worse). But that’s the case with any prediction. Regardless, it underscores the perception overall economic health right now is mostly fine.
Second, the report makes clear there’s multi-speed growth underway—but that’s hardly shocking either. It is, and always has been, a multi-speed world. Countries will experience different recoveries and growth trajectories—and they’ll face different challenges along the way.
So how to interpret this as an investor? When it comes to investing decisions, remember economic growth and market returns need not—and frequently don’t—coincide precisely. As we’ve discussed many times, stocks look forward—to future growth, profitability, earnings, etc. To the extent the OECD report discusses that, a potential takeaway is that gloom regarding US growth is likely overdone. In addition, stocks in a large and globally intertwined market like the US aren’t likely to move solely based on what US economic conditions are (or, more appropriately, will be). Global forces simply can and do matter.
Reading between the lines of the OECD’s report for the magic key to portfolio decisions will likely yield little of tremendous value. Investors simply have to dig deeper than GDP expectations to yield more meaningful information—and then compare those details to common perceptions. The space between is what drives markets—up, down or sidewise.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.