Fisher Investments Reviews the Global Economy’s Wellbeing

A Slow, But Growing World Economy

While global economic growth has slowed in recent years, we believe the economy has largely returned to pre-pandemic trends. In our view, this bull market that began in October 2022 anticipated the economy’s resilience over this time—and we believe the fundamental economic backdrop likely remains supportive of stocks ahead.

The global economy expanded 2.6% in the second quarter of 2024, according to the International Monetary Fund's (IMF) most recent estimate. Furthermore, the IMF forecasts 3.2% growth for 2024 and 3.2% in 2025.^[i] That’s not gangbusters, but it’s far from recessionary. The graphic below shows recent trends in gross domestic product (GDP) by region. While some economies have experienced brief stretches of economic contraction, the world economy has remained resilient and returned to pre-pandemic trends.

Source: FactSet as of 10/15/2024. Real GDP Level (in Bil. 2005 USD), quarterly, 12/31/2009 – 6/28/2024.

How Services and Manufacturing Indicators Stack Up

A primary flaw of economic indicators–such as GDP–is that they tend to look backward while stocks look forward. Purchasing managers’ index (PMI) reports are economic signals derived from monthly surveys of private-sector companies. These reports attempt to capture the private sectors' perception of the current state of their business and offer insight into what their plans are for the future.

PMI readings above 50 indicate more firms are expanding. Readings below 50 suggest more see contraction ahead. The chart below shows the overall composite of global PMIs (solid red line) has remained above 50 for most of 2024. Strength in services PMIs (dotted green line) has largely offset weakness in manufacturing PMIs (dashed gold line). That’s normal in today’s services-led world.

Source: JP Morgan Services, Manufacturing and Composite Global Purchasing Managers’ Indexes (PMIs), seasonally adjusted, monthly, 10/31/2021-9/30/2024.

How Stocks React to GDP Growth

Slow global economic growth may worry investors who assume strong stock returns require robust GDP growth. However, stocks can do just fine when the economy is expanding, regardless of magnitude, as the following chart shows. Stock prices typically make long-term upward progress unless the market anticipates an economic recession. Today, most major economies, including the US, continue to grow at a modest pace.

Source: Global Financial Data and FactSet as of 10/04/2024. Average S&P 500 Total Return Index annual returns categorized by US real GDP annual percent changes of the following year, 1970 – 2023. Presented in US dollars.

Want to Dig Deeper?

In this article, we discussed why we believe concerns about the global economy’s wellbeing are likely overblown. For more analysis on the backwards-looking nature of GDP reports, you can read Fisher Investments’ MarketMinder article, “Ancient GDP History and the Return to Normalcy.”

For more on recent US PMI reading, you can read Fisher Investments’ MarketMinder article, “Manufacturing and Services PMIs Break Little ‘News’.”

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

[i]Source: IMF World Economic Outlook, as of 10/22/2024, World GDP Percent Change, 2024 and 2025.