In the coming quarters, global growth will be driven by four major engines: North America around the United States, Europe around the euro zone, eastern Asia around China, and Japan. Although economic growth in the US and China will continue at a slower pace than last year, the euro zone and Japan will further increase their growth momentum.

Looking at current economic activity, the US – the most important economy with a fifth of global GDP – is overcoming the mid-cyclical contraction of the first quarter of this year, and the current recovery in consumer activity underpins an overall moderate growth during the second half of this year.

So far, the Chinese economy keeps slowing down, as it is in a transformation process, fostering domestic demand and reforming its financial structures.

However, stepped-up fiscal spending in energy and transport infrastructure, and monetary stimuli, like the recent cuts of the reserve requirement ratio for banks and of interest rates, are expected to stabilise economic conditions during this year.

China’s average pace of annual growth will be below 7 per cent and will be overtaken by a dynamically growing India this year. However, China is still by far the world’s second-largest economy, accounting for about a sixth of global GDP – dwarfing India’s economy by more than three times. Emerging Asia around these giants will remain the major growth source on a global scale.

After many years of negative or very modest growth rates since the financial crisis erupted in 2008 – excluding Greece, which is, for the time being, a very special and rather tragic case – the euro zone is continuing to gain traction and is likely to attain pre-2008-09 crisis growth rates again until next year, even though regional divergences will still remain large.

The Greek crisis may be a downside risk for the euro, but this economy is rather tiny – accounting for slightly more than 1 per cent of euro zone GDP – so contagion risks for the euro zone’s cyclical recovery appear limited.

In fact, despite the Greek crisis and tensions in Ukraine, the euro zone is actually emerging in the global context as the most dynamic recovery story in the coming quarters, driven by four tailwinds, of which Spain will profit the most besides Germany.

These include: a cheaper euro; cheaper commodities, in particular crude oil; the fruits of heavy corporate restructuring since 2010; and, resulting from the previous three tailwinds, the recovery of the euro domestic market.

This domestic market recovery is benefiting Spain through trade and tourism. By taking on the hardships of economic restructuring during the past few years, Spain offers the best example of an economy that has become fit for a brighter future amid harsh, relentless and globalised competition.

Japan, the fourth pillar of global growth, is experiencing a pickup in business investment and a gradual recovery in private consumption following aggressive fiscal spending, monetary easing and devaluing the yen – even though these reforms still have to take effect.

A continuing recovery, highly comparable in strength to that of the euro zone, is now on the cards.

In contrast to the hard-earned success stories mentioned above, most emerging markets in Latin America, eastern Europe, Africa, the Middle East and central Asia remain relatively sluggish and are a source of global demand weakness, as they often lack, or in many places have developed, arrears with reforms.

Although the drop in commodity prices in many commodity-exporting emerging economies is often a reason for their relative sluggishness, it has been a major driver for growth and a decline of inflation across many mostly commodity-importing economies.

However, in most recovering economies, the deflationary risks and their effects were only temporary, even though the pass-through to core inflation, excluding food and energy, is still latent. Until 2 per cent annual headline inflation (the definition of price stability) is assured, monetary policies will remain expansive over the medium term.

Some central banks, such as the European Central Bank, maintain their focus on containing deflation by keeping their currency weak, for example.

Looking ahead, however, we expect the first interest rate increases by the cyclical leaders – the US in the fourth quarter of this year, and Britain in the first quarter of next year. In their wake, higher long-term bond yields are only a matter of time. For now, equity markets are hard to ignore for serious investors.

Janwillem Acket is private bank Julius Baer’s chief economist.

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