Emma Wall: Hello and welcome to the Morningstar series, 'Market Reaction.' I am Emma Wall and I am joined by global economist for Fidelity, Anna Stupnytska to discuss where investors can find growth in the globe.
Hello, Anna.
Anna Stupnytska: Hello.
Wall: So we're here today to talk about global growth. There has been some recent indicators which suggest global growth perhaps isn't on track to hit the 3% predicted. What's gone wrong?
Stupnytska: We have seen some slowdown in the first quarter of this year. It has partly driven by some softening in the U.S., continuous slowdown in China and also general things are not picking up as fast as anticipated in emerging markets.
Wall: Looking then at the U.S., that's quite a contrarian suggestion that it is actually holding things back because up until this point after the recession, it's been the U.S. driving global growth forward.
Stupnytska: That's right. There are really three things that have been driving this softening in the U.S. One is weather-related. So there were some weather-related disruptions and this should phase out slowly over the next few months. The second factor has been the strength in the dollar and that has affected U.S. trade and this is something that will continue to be a drag.
The third factor is the energy sector related disruptions on the back of the sharp declines in oil prices that we've seen over the past few months. And I think this disruptions, this negative drag on growth should give way to the benefits to consumption, the positive boost coming to consumers over the next few months and I think we should see acceleration in the U.S. growth over the next few weeks and months.
Wall: So putting aside those things that have been holding global growth back, what's been positive globally and where are the best areas for growth?
Stupnytska: Well, it really has been the euro area and it might sound quite controversial after everything that we've gone through there and with actually all risks still out there. But data has really been improving and there are signs that the cyclical recovery is taking momentum.
Wall: Looking in emerging markets, they have become sort of renamed as the divergent markets, because they are just so different and separating in a way from one another. Russia is having quite a torrid time, but some other areas in Asia are really benefiting from cheap oil. I mean who is doing well within the emerging market space?
Stupnytska: Yes, the theme of emerging market differentiation has become much more pronounced and that is something that will stay with us not only this year, but for the years ahead. As you rightly pointed out, those countries that import oil they will benefit. These are countries mostly in Asia. So I think we will see better growth momentum coming from there, although China is a headwind. I do see some stabilisation in China data over the next few months, so that will also help.
On the other hand two big economies in the world Brazil and Russia are in recession and they are going to go deeper into recession over the next few months. So for investors, it's really important to differentiate within countries, within asset classes.
Wall: We're jumping around the globe a bit, but let's jump back to London, where we are here in the U.K. It's an election year. What can we expect from the economy, our domestic economy?
Stupnytska: I think the economy is doing well, and in fact, it has been doing better than expected. There has been some slowdown in housing sector and now it seems to be picking up again. I think the labor market has been strong. We should see inflation at low levels for a little bit longer. So I think the Bank of England will not hike rates any time soon or not at least until the end of this year. But, of course, elections are a big uncertainty and investors are not really sure how to play it. I think it's very important to watch the outcome.
Wall: Looking at forecasts, 2014 was forecast globally to grow about 3.7% according to World Bank. The IMF, although it's different measure, put global growth for 2014 in a 2.6%, that's quite a big differentiation. It seems to be a theme – indeed when everyone stands up in the Houses of Parliament, they get het up about it.
But difference between the full cost rates of growth U.K., Europe, globally and the actual rates of growth, they seem to be constantly revised down, I mean how important our forecast should we be worried about this?
Stupnytska: I think it's certainly important at which pace economies are growing. But for investors what matters is really momentum, where things are accelerating, where things are decelerating. For example, again in the Euro area, we've seen this quite significant acceleration and in a way at this point, it doesn't matter whether it grows at 1% or 2%. It's starting to grow from a very low base and I think this is what matters for the markets.
Wall: Confidence is everything.
Stupnytska: Exactly.
Wall: Anna, thank you very much.
Stupnytska: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
