Recent turbulence in global financial markets has been widely attributed to fears that a hard landing in China could lead to a sharp slowdown in activity growth in the rest of the world, including in the US and other developed economies. With global markets likely to be very sensitive to small changes in activity data in the months ahead, activity “nowcasts” should be a particularly useful tool for investors.
In this month’s global growth report card, we find little evidence that the feared global hard landing is actually happening, so far at least. According to the Fulcrum “nowcast” models, the global activity growth rate has remained virtually unchanged at around 3.1 per cent this month. This is around 0.4 per cent below the model’s estimate of the long run trend, and is similar to the growth rate recorded since spring 2015.
The advanced economies have continued to grow steadily, with the latest estimate of 1.9 per cent being slightly above trend (1.7 per cent), and also a little above the growth rates recorded in the spring.
On the other hand, the emerging market economies (EMs) continue to struggle, and are currently growing at 4.4 per cent, which is almost a full percentage point below trend. Commodity driven economies have, of course, been particularly badly hit. Both Brazil and Russia are still mired in deep recessions, with little sign of improvement, and Chinese activity has dipped again in August, after apparently rebounding in the aftermath of the piecemeal policy easing that was announced in April. There is no sign of much generalised improvement in activity in other emerging economies in Asia, where trade flows continue to slow sharply.
However, it is important to note that there are some isolated bright spots, including India and Korea, that have prevented a nose-dive in overall EM activity this month. Furthermore, while China has slowed, it has only done so to the extent that has happened several times in the past couple of years. The latest picture is therefore one of below trend, but not collapsing, growth rates in the emerging world. Whether the developed economies will catch the EM disease with a time lag remains to be seen but, since they should gain from the commodity shock, this is far from inevitable. Read more