We have observed in recent weeks mounting evidence of a global synchronized economic boom.
Here are five good reasons why this is happening:
- Global monetary policy remains ultra-easy.
- Chinese bank lending is at a record high.
- The 50% cut in oil prices since mid-2014 is a big windfall.
- Mass immigration into Europe is boosting the region’s economic growth.
- The global bull market in stocks is having a very positive wealth effect on economic growth.
While these factors have been in play for a while, it wasn’t until early last year that they came together to collectively exert a stimulative effect on the global economy.
This is most evident in the CRB raw industrials spot price index, which fell to a cyclical low of 398 on November 23 in reaction to the global recession in the energy business during 2015 (Fig. 1).
This index was up 28% through Tuesday to 509. Not surprisingly, the index, which includes no oil commodities, is highly correlated with the price of a barrel of Brent crude oil, which has also made a big comeback from last year’s low of $27.88 on January 20 to $59.00 on Tuesday.
We combine these two commodity prices to derive our Global Growth Barometer (Fig. 2). It is up from its low of 55 on January 20, 2016 to 79 on Tuesday.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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