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By HaleStewart April 22, 2018 7:43 am
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Moderate Mixed Messages on the International Data Front

     This week, we had the standard economic “on one hand, on the other hand” situation.  The IMF released their latest World Economic Outlook which contained bullish data.  However, we’re seeing some weakness in the OECDs leading numbers along with the Nowcasts released by the Financial Times.

     First, let’s look at the positive numbers from the IMF:

Let’s begin with the lower left-hand corner, which shows the rise in various PMIs over the last few years.  These numbers started to rise in late 2016 and continued increasing during 2017.  This led to increased orders which began to register in industrial production numbers in mid-2017 (top chart, blue line).  Global trade took off at the end of last year (top chart, red line).  Finally, consumer confidence started to increase in early-mid 2016, depending on the region.  This was probably due as much to the lack of bad news as to any positive development. 

     Let’s take a deeper look at the increase in trade, starting with advanced economies:

There’s a slight uptick in Germany and Japan.  But the real growth is in other advanced economies. 

     Turning to the emerging economies, we get the following data:


China (above in red) is the prime mover; their exports greatly expanded last year.

Overall the IMF projects solid growth numbers for the next few years:

Global growth is projected to strengthen from 3.8 percent in 2017 to 3.9 percent in 2018 and 2019, driven by a projected pickup in growth in emerging market and developing economies and resilient growth in advanced economies (Table 1.1). The forecast for 2018 and 2019 is stronger than in the October 2017 WEO by 0.2 percentage point for each year, with positive revisions compared with the October 2017 WEO for emerging market and developing economies and especially for advanced economies. The global effects of US fiscal policy changes account for almost half of the global growth upgrade for 2018–19 compared with October. Beyond 2019, global growth is projected to gradually decline to 3.7 percent by the end of the forecast horizon. The slowdown is entirely because of advanced economies, where growth is projected to moderate in line with their modest potential growth; growth across emerging market and developing economies is expected to stabilize close to the current level.

                The OECD has released its latest round of leading indicators, which point towards continued growth, but with a hint of weakness in a few data points.  Here’s a table from the latest report:

The OECD region’s numbers have moved modestly lower over the last two months, but this is after nearly a year of increases.  The modest decline is probably due to increased talk of protectionism.  When we add in the major six non-OECD countries, the LEIs top-off; they’ve been in the 100.2-100.3 area for the last eight months.  Europe is down for the last four months, as is the reading for the euro area and the four largest EU economies (Germany, France, Italy, and Spain).  Several other indicators (the Markit PMIs and the ZEW reading from Germany) have also picked-up this Euro area weakness.  The NAFTA countries are in an uptrend, which is due to increases in Canadian and US figures; Mexico’s LEIs are moving lower.  Finally, there’s modest weakness throughout Asia.

     The FT’s economic Nowcasts have also picked-up some of this weakness:

There’s been a drop in EU, US, Japanese, and Chinese nowcast numbers, which explains most of the movement lower in advanced economies.  Thanks to increases in raw material prices, emerging economies are doing well.

            Why the dip in the numbers?  There are probably a few reasons.  At the top of the list is rising talk of protectionism and tariffs.  It should come as no surprise that we’ve seen large dips in German confidence over the last few months.  But emerging economies have reasons to be concerned as well.  We also still have some weakness attributable to negative Brexit news.  There has also been an uptick in global stress: there was the Russian assassination attempt in the UK followed by the expulsion of a number of diplomats.  Brazil’s election is very rocky; the leading candidate was arrested on corruption charges while another candidate was charged with hate speech.  The Middle East is, as always, a difficult environment, currently exacerbated by the Syria situation.  Finally, North Korea remains an ever-present wild card.  The combination of all these events undoubtedly hit sentiment in a negative way.  






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