Shifting global economic growth

Things are continuing to look rosy for the UK economy.

The latest figures from the Office for National Statistics (ONS) show that last year was the strongest economic growth for the UK since 2007.

The UK economy grew by a not too shabby 1.9% last year, with growth in the final quarter estimated at 0.7%.

This means that GDP slipped back slightly from the 0.8% growth experienced in the third quarter, but there is still time for this early estimate to be revised upwards.

According to the ONS, the UK has experienced growth in most parts of the economy. Only construction fell in the final quarter, by 0.3%, with growth experienced in the service, manufacturing and industrial production sectors.

These new figures mean that the size of the British economy is now only 1.3% smaller than its peak in the first quarter of 2008; a size we expect it to grow beyond during 2014.

So things are looking up for UK PLC. The same cannot be said for emerging market economies.

Emerging market equities have experienced what has been referred to by one fund manager as a ‘healthy’ correction in recent days; ‘healthy’ in this context refers to a $1.5 trillion sell-off.

Naturally the impact of this has been felt in developed market equities as well, with the FTSE 100 having a slightly better day of it as I write this, up 0.60% at 6,590.20. It finished last week on a five week low.

Sentiment in emerging markets appears to have shifted. That is not to say that the economic outlook is particularly bad in these economies, just that it is not as stellar as investors have become accustomed to in recent years.

Global economic growth is still expected to be strong; D&B is forecasting 2.7% growth in 2014 and further acceleration through 2018.

Another forecast from investment firm Bridgewater Associates LP suggests that, for the first time since 2007, advanced economies, including Japan, the US and Europe, together are contributing more to growth in the $74 trillion global economy than the emerging nations, including China, India and Brazil.

What we might well be observing is a shift not only in investor sentiment but a comprehensive restructuring in where economic growth comes from.

We can no longer expect emerging markets to consistently deliver stellar economic or investment growth.

Investors will need to reconsider the shape of their portfolios accordingly.

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