The latest economic data indicates the world is “moving away from recession”, but growth will be weak, says Alejandra Grindal, chief economist at consultancy Ned Davis Research.
In an update for clients, she wrote: “The global economy ended the year showing signs of resiliency, exhibiting a second month of modest expansion, according to the latest [S&P global purchasing managers’ indices]. The Global composite (services and manufacturing) PMI climbed 0.5 points to 51 in December.
“It was the second month of expansion, following stagnation in October, and the highest reading since July. Moreover, the recent months’ acceleration triggered a buy signal in our equity indicator,” Grindal continued.
“Leading indicators, such as overall new orders and the future output index, rose to their highest levels in six months, indicating continued growth in the near term. The composite PMI moved further away from its global recession threshold of 47.8, historically associated with recession.”
Grindal added that the pace of growth in PMIs remains below long-term averages, implying growth will similarly be below long-term trend rates. Her view is that whatever growth there is will be unevenly distributed, with the services components of economies continuing to perform well, while manufacturing performs less well.
Happy-go-lucky?
Perhaps linked to those sectoral trends, she is “concerned” about the prospects for the continental European economies, which tend to have large manufacturing bases, but also noted that the services sectors there are also declining.
GlobalData TS Lombard director of global macro Konstantinos Venetis says that while the macroeconomic data gives credence to a view of “cautious optimism”, he believes that some of the upward momentum associated with the prices of risk assets lately implies an “all clear” for the global economy, rather than a slow shift upwards.
Venetis argues that the US economy will continue to drive growth: “This remains a largely asynchronous economic cycle. Europe is stagnating and China is on course for another year of weak growth, which still leaves the US pulling the growth cart on its own.”
He says that if there is to be a sharp change in the economic narrative, it is more likely to be a case of the US economy declining in performance terms and beginning to resemble Europe, than the other way around.
Kingswood Group chief economist Rupert Thompson says he believes the “macro environment is much improved”. He is cautious on the outlook for inflation, and in particular around the recent rally in equity prices, which he feels has been driven by the view that inflation will be lower.
“It remains far from clear how easy it will be to reduce inflation all the way down to the 2 per cent targeted by central banks. Longer-term sources of inflation pressure include deglobalisation, decarbonisation and ageing populations,” he says.
