Data from the first quarter showed that global growth slowed. In this week’s IDB we examine two of the world’s most important economies; while the US disappointed in Q1, the Eurozone exceeded expectations.

The US outlook remains mixed, first quarter growth fell short of expectations dragged lower by net exports and fixed asset investment, while private consumption again proved to be the main driver. Consumer confidence may have been slightly shaken recently, but there is good reason to believe underlying strength remains. The US consumer currently benefits from low oil prices, falling levels of debt, a strong labour market and higher real incomes. With c70% of US GDP arising from private consumption a recessionary scenario is unlikely unless consumer strength is undermined.

First quarter Eurozone growth positively surprised versus expectations with domestic demand providing the main driver of expansion. There is firm evidence that European Central Bank asset purchases have benefited the economy, notably Bank lending has expanded and levels of unemployment have started to fall.

The worst fears of markets have eased and recessionary risk is low, however we remain cautious. As such, portfolios are defensively positioned with regards to equity risk, while fixed income investment remains focused on financials, European corporates and selective emerging market opportunities.

Thanks to our friends at London & Capital