The climate of global economic uncertainty is fading. The initial weakness seen in Q4 reports of global growth has been slightly moderated by subsequent revisions. In recent weeks, the tracking of Q4 growth has increased to 1.8% q/q, saar, which is still almost one point lower than potential. The rise in the Q4 growth estimate has been concentrated in the developed market.

Last week’s reports showed moderate upward revisions for Japan and the Euro area. Also, it is believed that the US growth is tracking 1.4%. For the current quarter, the projection of a moderate acceleration is gathering support from the recent activity data, while the earlier negative signs from business surveys are in contrast. Admittedly, the perception of risk to the outlook of developed market has moved to neutral or positive from a downside skew.

However, the weakness in the fourth quarter in developed market continues to be puzzling, particularly since it was concentrated on consumption.  In the last quarter, consumers in developed market were in a sweet spot. Their position has rebounded since then, based on strong growth in labor income and lower energy prices. Although there was concern regarding the probability of a reduction in business hiring, there are no signs of that happening.

An increase in the pace of consumer spending in the developed markets will strengthen sentiment, assist businesses in clearing excess inventory and provide a required boost to manufacturing production. Recent developments are hopeful. In January, developed markets recorded strong growth in retail sales with Europe and the US more than countering the continued weakness in Japan.

The solid gains in retail spending might have already stimulated manufacturing that declined sharply into year-end. In January, production increased across the G4.  The recent volatility in manufacturing and retail sales in the developed market probably suggests certain combination of coincidence, usual weather and faulty seasonal adjustment. However, even if conservative assumptions are formed about the next few months, a strong acceleration in consumer spending, manufacturing production and GDP should take place in the developed markets.

As the confidence increases that global growth is recovering from last quarter, signs that the business fixed investment growth continues to be weak reduces the enthusiasm. Capital goods shipment of G-3 and global capital goods imports is a new tool developed for tracking business equipment spending. This segment of demand weighed heavily on global manufacturing in 2015, dampening the solid positive impulse from consumers.

There are also concerns regarding the weakness in economic recovery in emerging markets. The available data indicates moderation in retail sales growth and continued sluggish growth in industrial production. Data from emerging markets in Asia for international trade, PMIs and industrial output has been downbeat as it was highlighted by recent reports of contraction in February exports from Taiwan and China. This shows that smartphone minicycle that stimulated industrial activity temporarily throughout emerging markets in Asia during the second half in 2015 has faded. Also, global business investment is expected to be still weak, while the GDP growth seems to have slowed in this quarter.