Fisher Investments Editorial Staff
GDP, US Economy, Emerging Markets

Underdogs Victorious

By, 03/01/2010

 Story Highlights:

  • US Q4 GDP was revised upward to 5.9%, beating expectations, but not everyone cheered the results.
  • Most Emerging Market economies—the biggest driver of growth globally—also beat expectations, continuing to drive the global recovery.
  • As the recovery continues, expect developed countries to feed off the energy of their developing counterparts.

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It's been a triumphant two weeks for the Stars and Stripes in Vancouver. The US is running away with the overall medal count, winning hardware in nearly everything but curling. Another US victory: Friday's revised Q4 2009 GDP report, which inched up to a gangbusters 5.9% annualized growth rate.

Great news! Not that you could tell from some of the gloomy headlines:
Brisk 5.9 Percent Growth in Q4 Will Likely Fade
Fourth Quarter GDP Revised up to 5.9%, but Struggles Seen Ahead

US Economy Surges at 5.9% Pace in Q4, but Growth Spurt Unlikely to Last…

Why a Blizzard may Obscure GDP's Shine

You get the picture: The pessimism of disbelief is alive and well.

Why so glum? Some fear growth is unsustainable due to weak consumer spending and continuing high unemployment. Others assume the bounce only came from slower inventory depletion. Yet the report showed plenty of strength in other areas. Besides, GDP reports are always a mix of gold, silver, bronze, and misses. What matters most is the aggregate result, which shows the US economy has come a long way since the depths of 2008-2009.

Sure, Friday's report wasn't all glitter and gold—GDP still shrank 2.4% overall in 2009. Yet even this carries good news: Contrary to popular belief, consumer spending held up pretty well during the downturn. The economy wasn't dragged down by consumers, but by reduced business spending and exports. Firms cut spending dramatically amidst fears of a worst-case economic scenario, and global trade fell off as economies worldwide slowed. These areas are already showing tremendous resilience, and with the US and foreign economies reaccelerating, business spending and export growth should continue to rebound as they did in the fourth quarter.

The US GDP report might dominate headlines here, but in today's interconnected world, the global economy is what really matters. And it's Emerging Markets, not the US, standing atop the podium. Collectively, emerging economies are bigger than the US and about as big as the EU, and they're leading the charge out of recession. Nearly every emerging market economy beat growth expectations in Q4, including China, Russia, Taiwan, Mexico, South Africa, Thailand, Malaysia, and Indonesia! (A few, like Brazil and Poland, don't report until March.) Even the only major countries to miss, South Korea and India, still grew nicely at 6.0% year-over-year.

The effects should spill nicely into developed countries. After all, growth in developing countries means more demand for goods from their developed counterparts. More buyers for things like cars, flat-screen TVs, and loud American pants among other things mean increasingly bright growth prospects in many countries. As global stocks continue pricing in an improving global economy, investors should enjoy a winning 2010.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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