10.06 Weekly Viewpoint : Monthly surveys for May point to a new marginal slowdown in global GDP growth in 2Q 2016

Monthly surveys for May point to a new marginal slowdown in global GDP growth in 2Q 2016, due to the manufacturing sector and to the pronounced weakness of global trade. However, the increase in commodity prices would seem to anticipate a re-acceleration in the second half of the year. In effect, monetary policies are more accommodative than expected, and pressures on the balance of payments of the emerging countries have eased……..

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Signals on the direction of global growth are mixed, at the moment. The reading is made even more complicated by the fact that local fluctuations are out of synch, in part also due to unusual weather conditions, which had opposite effects on the typical seasonal trends of energy consumption and construction work in Europe and North America. For instance, we already know that in 2Q 2016 GDP growth will re-accelerate in the US, as opposed to a slowdown in the euro area.

Global PMIs, resulting from the aggregation of national surveys, weakened further in the April-May period. The manufacturing PMI dropped to 50.1 from 50.5, more than balancing the increase from 51.7 to 51.9 recorded in the services sector. Therefore, PMIs are sending signals compatible with a further marginal slowdown of global year-on-year GDP growth in 2Q 2016. Therefore, growth would drop to its lowest levels since 1Q 2013, although the small forecast change, and the margin of error tolerated in the estimate, are such that there is a probability of around 30% that, by contrast, the growth rate could actually accelerate slightly. Weakness is relatively more pronounced for global trade: the CPB import index, smoothed using a 3-month moving average, stayed flat in March compared to a year ago, as a result of weaker imports in the emerging countries, only just balanced by a slowdown in growth in the advanced countries. This was the worst result since 2009. Also, the PMI on foreign orders, which dropped below 50 in 1Q, decreased further in the April-May period, to 49.0, making a recovery in global trade flows in 2Q very unlikely. The value of these trade flows, however, is destined to increase as a result of the recovery in oil and commodity prices in general.

Unlike the PMI survey, the rebound in oil prices provides a positive signal in terms of quarterly growth between 2Q and 3Q 2016. While stably higher oil prices tend to depress growth, in the short term GDP growth acceleration phases seem to be typically preceded by an increase in oil quotations, although this is not always a reliable signal. In this specific case, the strengthening is ambiguous: on the one hand, we know it also reflects negative shocks on the supply side (Canada and Nigeria especially), a factor which dampens its role in signalling growth trends. On the other, however, the recovery in oil prices also reflects the slower pace of monetary restriction in the United States, and signals of a stabilisation of the Chinese economy: two factors that help support economic activity. Furthermore, it eases concerns over the stability of countries that are strongly dependent on oil exports, and has already halted the downsizing of oil infrastructures in the United States, and will therefore reduce the cooling effect on US GDP growth hitherto exercised by the crash of investments in the mining sector. For all these reasons, as well as for the easing of pressures on the balance of payment of developing countries, it is not so implausible that the recent rebound in commodity prices may be followed by a slight re-acceleration of global growth in the second half of 2016.


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