>Can growth surprise further on the upside? (HSBC)

■ How fast is global growth recovering?

■ The depth of the drop – and misleading y-o-y changes – make that a hard question to answer

■ But growth will probably continue to surprise on the upside

Nobody doubts that growth in the world economy has begun to recover. But, with global stock markets having risen 61% from the bottom (and some much more than that, notably China up 122%) the key for the next few months will be how fast growth rebounds and how sustainable the rebound is. Growth, then – much more than monetary policy (major central banks will be on hold for the foreseeable future) or valuations (reasonable as long as earnings recover) – will be what drives equities over the next couple of quarters.

But the path of growth is particularly hard to predict at the moment. First, because the global economy fell off a cliff at the end of 2008, the y-o-y change in almost any data series you look at is going to swing from a big negative to a big positive over the next few months. Chart 1, for example, shows the likely path of Asian exports in y-o-y terms (assuming a moderate recovery continues). By next February, they will be growing over 60% y-o-y. Markets are likely to react positively to such a strong number, even if it is misleading. But it is even harder to judge how far the underlying data might rebound. Many data series at the moment look like Chart 2, which shows monthly Japanese exports. These fell 50% from peak to trough. But how fast and far will they recover?

This note looks at indicators of growth (IP, earnings, economists’ forecasts) and concludes that growth is likely to continue to accelerate for a more few months, beating current forecasts. But that is more so for developed or highly cyclical economies than for Asia, especially China, where output and earnings are already back close to peak levels.

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