Is the economic recovery overheating?

It appears parts of the global economy have already come full circle since 2007, with a move back into the Overheat phase of our Investment Clock model.

Growth lead indicators have strengthened substantially, with the scorecard lead indicator back to levels last seen in the 2003/4 v-shaped recovery. Interestingly, headline inflation lead indicators have also picked up.

This moves the Investment Clock model into the Overheat phase for the first time since 2007.

This is no ordinary overheat. Central banks will be in no hurry to move to a restrictive monetary policy, given massive spare capacity and fears of a relapse in economic growth and unemployment.

A model can be useful to help investors understand where we are in the economic cycle and what might come next. Fidelity International uses an "Investment Clock" (above left) that links the performance of asset classes and equity sectors to the global economic cycle. Using the clock we can estimate what phase we are in and where we are heading (above right).

The above article has been sourced from FIL Investment Management (Australia) Limited. 

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.