Blog | 23 Apr 2018

Global growth may be peaking – but a slowdown doesn’t spell a slump

Is the world economy’s current, long-running upturn running out of steam? Jittery financial markets that have struggled to regain a firm footing since February’s sell-off, anxieties over the US-China trade tariffs confrontation, and now a spate of weaker data for some major economies have all sparked concern over whether the global economy’s expansion may be stuttering or at risk.

We find, however, that the global expansion is continuing, although it may be peaking, with the strong and synchronised growth of 2017 having failed to fully carry over into this year.

Using our newly-developed in-house leading indicators (launched in February), we find some evidence of a loss of momentum in the world economy and a pattern of global growth that is less synchronised than previously – although with expansion still running at a decent pace.

The loss of growth momentum is quite widespread across economies, but most marked in Canada, South Korea, and a number of European countries including the UK, Portugal and Sweden. Growth rates also showed signs of flattening off in Japan, the US, France, Austria and Belgium. For Taiwan, a loss of momentum seems to have started earlier, in 2017.

But even with some flattening off of growth rates, the world economy is still expanding at a decent pace and it is too soon to be talking about significant recession risks.

Much attention has focused on the manufacturing sector: the world manufacturing purchasing managers’ index (PMI) has slipped for the last three months and the number of economies showing contracting or stagnating output has crept up. But the current reading of the global manufacturing PMI still signals a continuing – if more moderate – expansion.

Evidence of a possible loss of momentum in world growth is more clearly visible if we look at 3-month changes in our global leading indicator, which has moderated significantly in recent months, falling to near zero after being positive for over a year.

This points to a levelling off in the pace of global growth. The bulk of economies are still growing and some economies, most notably China (so important in leading the 2017 upturn) and Hong Kong, appear to have rebounded in Q1.

It remains possible that the recent flattening off of growth rates could prove to be a plateau rather than a precursor to a sharp slowdown (which would be broadly in line with our baseline forecasts).

Special factors in Q1 2018, such as adverse weather conditions and seasonal factors including Chinese New Year, and in the Eurozone, the timing of new year as well as changes in statistical methodology, could be also blurring the picture, making it look rather darker than is really warranted.

So, while remaining vigilant, we consider it too early to be talking about a serious risk of a recession or a sharp growth slowdown.

Read more about our analysis and OE leading indicators here.

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