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.