Global Economies Grow in Sync

By Josh Zumbrun Features Dow Jones Newswires

For the first time in a decade, the world's major economies are growing in sync, a result of lingering low-interest-rate stimulus from central banks and the gradual fading of crises that over years ricocheted from the U.S. to Greece, Brazil and beyond.

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All 45 countries tracked by the Organization for Economic Cooperation and Development are on track to grow this year, and 33 of them are poised to accelerate from a year ago, according to the OECD. It is the first time since 2007 that all are growing and the most countries in acceleration since 2010, when many nations enjoyed a fleeting snapback from the global financial crisis.

The International Monetary Fund in July projected global economic output would grow 3.5% this year and 3.6% in 2018, up from 3.2% growth in 2016.

In the past 50 years, simultaneous growth among all the OECD-tracked countries has been rare. In addition to happening last decade, it has only happened in the late 1980s, and for a few years before the 1973 oil crisis.

"It's not a particularly fast or thrilling beat, more plodding and methodical, but it's getting the job done," Josh Feinman, chief global economist of Deutsche Asset Management.

The development comes, ironically, just as nationalist movements in the U.S., Europe and beyond have gotten a new life, driven by suspicion over global trade and finance. At the moment, the growth pickup is lifting the fortunes of car makers in Japan, coal miners in Indonesia and forklift makers in Germany. U.S. exports grew near a 6% annual rate in the first half of the year, their best two-quarter performance since the end of 2013 and outpacing the average of the previous decade.

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The episode could be undone if synchronized growth morphs into overheating. As years of crisis have demonstrated, soaring global stock prices or regional property markets could quickly turn to financial mayhem that takes down economies. Moreover, central bankers, gathering this week for the Federal Reserve's annual conference in Jackson Hole, Wyo., could derail the upturn if they pull back financial stimulus too aggressively.

For now, though, the global upturn appears on track, in part because inflation is low and central bankers are moving gradually.

Federal Reserve Chairwoman Janet Yellen and European Central Bank President Mario Draghi, both speaking in Jackson Hole Friday, can point to the global backdrop to justify plans to pull back stimulus programs. The Fed is expected in September to begin reducing $4.5 trillion in holdings built up over the decade to help drive down interest rates and boost risk-taking by investors, households and business. The ECB is nearing the end of its own bond-purchase program.

"For the first time in many years, we are seeing signs of synchronized economic expansions at home and abroad," said Fed governor Lael Brainard in a speech shortly before the Fed's June meeting. Ms. Brainard has been a leading voice of caution at the Fed about interest-rate increases. Now she is supporting the Fed's plan to shrink its securities holdings.

A wide range of factors are at play in the global upturn.

Among them, long-troubled eurozone economies, even Greece, show signs of finally turning a corner. The OECD sees 1% growth for Greece this year, not much but still the best in 10 years and against a backdrop of falling unemployment. The country last month successfully returned to the international bond market after having been locked out since 2014.

Economic growth in the 19-nation eurozone outpaced the U.S. in the first quarter of the year and kept pace in the second quarter. Economic confidence is at its highest level in a decade, and unemployment has fallen to an eight-year low of 9.1%. Growth has broadened beyond traditional powerhouses like Germany and the Netherlands: Spain notched its best growth performance in nearly two years in the second quarter. France and Portugal are both posting solid growth.

Jungheinrich AG, a German maker of forklift trucks, is benefiting from a "very good recovery" in Spain and Portugal, according to its chairman, Hans-Georg Frey. The firm, which makes four-fifths of its revenue in Europe, recently reported a 14% rise in net sales for the first half of the year. "We are looking forward to a positive second half," Mr. Frey said.

In Italy, increased exports -- up 8% from a year earlier in June -- have helped push the nation's trade balance into surplus. Italian engineering firm CNH Industrial NV had seen its sales slide by about a quarter since 2014, but the firm reported a 3% rise in sales for the second quarter, to $6.9 billion, driven by strength in Asia and Europe.

In many advanced economies, including the U.S., the aftereffects off the financial crisis are finally fading. American households have stopped paring back their debt exposures and started returning to normal spending patterns. The fiscal stance in many advanced economies has shifted from austerity to ease. And although the Fed has begun to raise its target interest rate, most interest rates around the world remain low and below inflation rates.

The world is also benefiting from a reversal from a global commodity bust that began in 2014. New energy supplies, such as from U.S. fracking, combined with soft global growth to send prices plunging. Now, prices have firmed and investment is picking up.

After the commodities bust helped sink Brazil into its deepest recession ever, it is now forecast to expand 0.3% this year and 2% in 2018. The IMF's global price index for all commodities is up 27% from the start of 2016, and Brazil's crucial iron ore has seen prices rise 37% off their recent bottom.

That is feeding through to the rest of the economy. MRV Engenharia e Participações SA, Brazil's largest builder of homes for low-income families, has launched 21% more new projects in the first half versus a year ago, said Chief Financial Officer Leonardo Guimarães Correa. The country is "moving from a downward period to a period of recovery," Mr. Correa said.

Indonesian conglomerate PT Astra International saw net profit in its coal-mining subsidiary jump 85% during the first half of the year, while its maker of crude palm oil booked a 26% year-on-year increase in net profit. "For the rest of the year, we expect to continue to benefit from the [higher] coal and crude palm oil prices," said Yulian Warman, a spokesman for Astra International.

While the global outlook has bolstered U.S. stocks, investors in other countries have benefited even more: Indexes in Turkey, Hong Kong, Argentina, Greece and Poland are all up more than 20% this year, doubling the performance of the Dow Jones Industrial Average.

"All the attention to the U.S. election was covering up how much the rest of the world was improving," said Adolfo Laurenti, global economist at the Swiss bank J. Safra Sarasin.

Japan's economy grew an annualized 4% in the three months through June, lengthening its most recent stretch of growth under Prime Minister Shinzo Abe to six quarters. Consumer spending is helping drive growth; Nissan Motor Co. saw its Japan sales rise by 46% year-to-year in the June quarter thanks to the popularity of a minivan equipped with autonomous driving tools.

U.S. companies with large international footprints are among the big beneficiaries. Marriott International Inc., whose stock is up 23% this year, posted better-than-expected earnings this month on the back of rising revenue around the world.

"We are very optimistic about the long term," said Arne Sorenson, the hotel chain's chief executive, on an earnings call this month. Revenue per available room "is increasing in most markets around the world," he said.

The three other periods in the past 50 years with synchronized growth saw the trend continue for a few years. In the end, however, those expansions became overextended and ended.

Some signs of froth are popping up now, beyond soaring stock prices. China relies increasingly on its property market for growth. Despite the government's recent crackdown on speculative home purchases, persistent demand for property has boosted production and sales of construction material, furniture and other items. Astronomical property prices are causing many consumers to tighten their purse strings.

Yet broader inflation is low world-wide, which will give central bankers an opportunity to proceed slowly in pulling back stimulus. It will make for easier breathing in the thin air of Jackson Hole, after years of crisis management and hand-wringing about the prospects for the global economy.

--Tom Fairless in Frankfurt, Grace Zhu in Beijing, Luciana Magalhaes in São Paulo and Megumi Fujikawa in Tokyo contributed to this article.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

August 23, 2017 16:54 ET (20:54 GMT)