Just when it all seemed very bleak, the global economy has shown some tentative signs of a rebound in recent weeks. The improved data significantly reduce recession risks in the near term.
Last month, in our regular report on the results of our “nowcasts” for world economic activity, we pointed to a sharp weakening in eurozone growth, leading to new lows for global growth in the recent slowdown. The US and China both seemed to be stuck in a prolonged malaise, and the world growth rate had slumped to more than one percentage point below trend.
Furthermore, momentum was negative. Economic commentators, including the IMF and the major central banks, were warning of increased downside risks to global economic projections. In fact, they are still issuing these warnings.
This month, however, the data have failed to co-operate with the pessimists.
Global activity growth has bounced back to 2.6 per cent, compared to a low point of 2.2 per cent a few weeks back. Much of this recovery has occurred in the advanced economies, with our nowcast for the United States showing a particularly marked rebound after more than 12 months of progressive slowdown.
It would be wrong to place too much importance on a single month’s data, especially when the nowcasts are heavily influenced by business and consumer surveys.
These surveys have remained mixed, but downward momentum has been partly reversed in most advanced economies, especially in the US where the regional Fed surveys for March have been identified by the nowcast models as major upside surprises. In fact, sentiment had become so pessimistic that even slightly better data have represented positive surprises relative to economists’ expectations, according to the Citigroup Surprise Indices.
These better numbers still leave the global economy growing at 0.7 per cent below trend, so spare capacity in the world system is still rising, and long term underlying inflation pressures should therefore still be dropping.
Better, but still not very good, is this month’s verdict. Full details of this month’s nowcasts can be found here
Advanced economies lead the improvement….
Recently, the most interesting part of the global story has been focused on the advanced economies (AEs), not the emerging markets. The AEs embarked on a significant slow-down phase almost exactly a year ago, led by disappointments in the US. The eurozone managed to buck this slowing trend for much of 2015, but it caught the American disease early this year.
This phase of increasing AE weakness in the US and Europe eventually infected Japan and other advanced Asian economies as well, and this brought the AE growth rate down from 2.3 per cent in late 2014 to only 1.0 per cent last month – a new low point for AE growth since the end of the Great Recession in 2009, except for a short period during the euro crisis in 2012.
Most economists attributed the slowdown to the effects of weaker exports to the emerging markets, to cutbacks in investment in energy sectors and to increases in real interest rates as inflation fell. In addition, productivity growth refused to rebound from abnormally low levels. Secular stagnation was the talk of the markets.
The improvement in the nowcast this month is therefore very welcome. Growth in the AEs is now estimated to be 1.6 per cent, which is almost exactly equal to the long term trend rate. The rise of 0.6 per cent in the estimated growth rate in a single month is unusually large, but it is supported by the hard data on manufacturing output in the AEs in January and also by encouraging retail sales data, after several months of surprisingly weak consumer spending in the AEs.
When will we ever learn?
The slight improvement in recent data needs to be kept in context. The grim story of downward forecast revisions for growth in the global economy continues. For the fifth successive year, consensus GDP forecasts for 2016 have already been revised downwards by a full percentage point, and they continue to plummet. Even with this month’s better data, the global growth rate is still running about 0.7 percentage points below the consensus forecast for the calendar year, so further downgrades to forecasts look highly probable.
The AE recovery has been led by the United States this month…
The brightest spot in the global economy this month has been the US, where the nowcast has suddenly jumped to 2.2 per cent after a prolonged period when it was stuck around 1.0-1.5 per cent. The Federal Reserve was confident that this would happen but, until this month, published data were not consistent with their relatively bullish view. This has now changed, with a series of upside surprises in activity data published in March, notably in the extremely strong survey data from the regional Feds. This includes the Philadelphia Fed business survey, which (on J.P. Morgan’s estimates) has been the most accurate predictor of US manufacturing output lately.
It now seems likely that the US manufacturing sector has rebounded as inventories have stabilised, the effects of the strong dollar have abated, and cutbacks in energy investment have ended. For the first time since the first half of 2015, US activity growth now seems to be slightly above trend.
Meanwhile, last month’s drop in eurozone growth is mostly still intact….
In February, the most significant change in the nowcasts was a sharp drop in eurozone growth, ending a period in which the eurozone had seemed more robust than the US. We mentioned at the time that the drop in the estimated growth rate to only 0.8 per cent owed much to the retrenchment in business surveys in February, including those in Germany, which might have been statistical outliers. Sure enough, there was some improvement in these surveys in March, and the estimated growth rate has recovered slightly to about 1.2 per cent. But the relatively strong (above trend) performance of the eurozone economy, which persisted throughout 2015, seems to have ended for the time being.
China has weakened but policy is easing markedly…
China continues its pattern of mini cycles which last less than a year from peak-to-peak, super-imposed on a gradually declining trend rate of growth. It is not clear what causes this pattern, though it may be due in part to repeated bursts of policy support which periodically push the growth rate above trend, before fading away.
The latest mini cycle embarked on a downward phase in January 2016, and it has taken the activity growth rate down to only about 5.o per cent, the lowest rates recorded since the Great Recession. In contrast to previous episodes, the markets have not shown much concern about this dip in growth, apparently believing it to be temporary. It is clear that fiscal and monetary policy are now in expansionary territory, and this should lead to a recovery soon, albeit one that is based, as usual, on fixed investment.
As last week’s blog mentioned, the market’s insouciance may be connected to an improvement in the credibility of Chinese macro-economic and exchange rate strategy, compared to the implosion of confidence that followed confusing policy communications in 2015.
调查结果依然混杂多样，但大多数发达经济体的下行势头在一定程度上得到了扭转，尤其是在美国，我们的短时预测模型发现，3月份美国地区联储的调查结果显示出较大的上行惊喜。实际上，花旗意外指数(Citigroup Surprise Indices)显示，市场情绪此前已经变得如此悲观，相对经济学家的预期，即使稍微好一点的数据都代表着惊喜。
本月美国经济表现在全球经济中一枝独秀，其增速短时预测突然跃升至2.2%，此前长期停滞在1.0%-1.5%左右。美联储之前就有信心会出现这一局面，但直到本月之前，所公布数据与其相对乐观的观点并不一致。但这种情况现已改变，3月份公布的经济活动数据带来一连串惊喜，尤其是地方联储极为强劲的调查数据。其中包括费城联邦储备银行(Philadelphia Fed)的商业调查，据摩根大通(J.P. Morgan)的估计，该调查最近是对美国制造业产出最准确的预测。