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Nov 13 2017

The Problem with Global Growth Forecasts

Following ECRI’s October 2016 forecast of an improving global growth outlook, and our recognition in early 2017 of the “Brightest Global Growth Outlook Since 2010,” world GDP growth has surged to almost a 6½-year high (chart, blue line).

Naturally, this stronger GDP growth has fostered high hopes for sustained strength in global growth into next year. Part of the prevalent optimism comes from the fact that such a synchronized global growth upswing – including both advanced and emerging economies – has not been seen since 2010.

However, most people do not understand is that this global growth upswing is cyclical in nature and, by definition, susceptible to a reversal. In fact, most forecasts of continued global growth merely extrapolate the recent trend, and can therefore recognize turning points in the global economy only well after the fact.

Indeed, our leading indexes, designed to anticipate cyclical turning points in world economic growth, are already warning that global growth is as good as it gets. Therefore, consensus expectations are again at risk of being caught off-guard and our global leading indexes bear watching.

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