Notes from the Field: Spring 2017 | Capital Group

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Notes from the Field: Spring 2017

Observations from Capital Group Analysts Around the World.


How Long Until the Next U.S. Recession?

It could be further away than many might think. Some worry that the current economic recovery is long in the tooth, but several countries have enjoyed significantly longer expansions in the past. Although the U.S. is likely closer to the end of this cycle than the beginning — and political uncertainty remains — there are few signs of imbalances building in the economy and reason to believe the momentum of upward economic growth can continue.

China is a Supertanker Economy: It Takes Time to Turn.

But momentum appears to be rising. Infrastructure will dominate 2017 spending, and earnings growth should be pretty strong in the first half. Real interest rates have fallen to zero, wages are rising, and so is consumption. And while the consensus on housing remains bearish, sales and starts are still growing and prices are stable.

Economic Conditions in India are Rebounding After a Massive Currency Recall in Late 2016 that Left Consumers and Businesses Strapped for Cash.

The worst appears to be over, however, and business in India should hit its stride again within the next three to six months, barring any further surprise disruptions.

Retail Sales in the Eurozone Rose Above Pre-Recession Highs in 2016. 

Similarly, economic sentiment improved in the latter stages of the year and registered the highest level of optimism since 2011. This could lead to growth opportunities for companies that operate in Europe, and be especially beneficial for those well positioned to take advantage of rising consumer demand.

Asia's Export Cycle May Finally Be Kicking In.

Taiwan has broken out to the upside, while Indonesia is benefiting from greater commodity demand from China. All else being equal, the U.S. and eurozone should support moderately faster Asian export growth in 2017.

The Ultra-low Interest Rate Enviornment in Recent Years Has Put Bank Profits Under Pressure. 

However, the increase in interest rates in recent months has sparked optimism that banks may see profit growth due to higher net interest margins. European, U.S. and Japanese bank stocks have all surged, registering double-digit percentage increases since Treasury yields touched bottom last July. An acceleration in global economic growth, accompanied by greater demand for banking services, could provide additional support for the sector.