Summary and Outlook
Global indicators suggest the global economy is reaccelerating somewhat following a weak start to the year. In the US, the Institute for Supply Management (ISM) reading has recovered and momentum in OECD leading indicators has improved. In China, PMI, momentum in industrial production and exports have bottomed. The euro area has seen a continued steady rise in Purchasing Manager's Index (PMI) but other indicators are more mixed.
• We look for global growth to strengthen in Q2 following a low in Q1. Going into H2 we expect annualised global growth to be 4%-plus driven by 3% growth in the US, 2% growth in the euro area and 8% growth in China.
Details
• In the US, momentum in the OECD leading indicator has increased somewhat after a long period of deceleration. The ISM indicators came out strong, driven mainly by stronger employment, while new orders moved sideways. Altogether the indicators suggest US growth is gaining speed in Q2.
• In the eurozone, leading indicators are a bit mixed. The OECD leading indicator for the euro area has lost a bit more momentum and German order growth and the ZEW index have also declined a bit. However, PMI continues to grind higher driven by the service sector. The strong euro may be dampening manufacturing performance somewhat. The periphery is still performing well and Spain in particular stood out, with the highest new orders PMI in three years. In the UK, growth momentum is stabilising at healthy rates.
• Manufacturing is strong in Denmark but a bit mixed in Norway and Sweden.
• In China, the PMI figures and momentum in industrial production suggest growth has bottomed but only modest improvements are ahead. While the OECD leading indicator is still declining, this is happening with lower downward momentum. Lower interest rates and the mini fiscal stimulus already announced point towards a moderate recovery for China in H2. Data for Japan continues its downhill climb in the wake of the consumption tax hike in April from 5% to 8%. This leaves room for contraction in Q2, while we expect a moderate recovery in H2.
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