How Bad is the Global Economic Slow Down?

The scale of the previously predicted first quarter global economic rebound has suffered downward revisions as the relapse in US private sector domestic demand has continued

Andy Brunner 15 April, 2016 | 11:35AM
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With most revisions now reported, the last three months of 2015 recorded the slowest pace of global growth since the European Union and Japan were both in recession in 2012. From a developed economy perspective this was principally due to a sizeable investment-led slowdown in US domestic demand and a consumption-led contraction in Japan; in the emerging countries, it reflected slower quarterly growth in China and India as well as the on-going recessions in Brazil and Russia.

The scale of the previously predicted first quarter global rebound has suffered downward revisions as the relapse in US private sector domestic demand has continued. Another weak GDP figure, with growth again possibly below 2%, appears in prospect.

But hopes of an acceleration into the spring remain intact with a second quarter – the three months from March to June – rebound to 3% to be led by an upturn in developed market growth, particularly from the US and Japan. With stronger data also due from China and India, emerging markets are also expected to record a considerably better quarter.

Following several weak quarters a rebound in global industrial production is predicted. Indeed, the latest manufacturing PMIs point to some stabilisation with the global index increasing by more than expected and an accompanying rise in the orders/inventory ratio.

Particularly encouraging were marked improvements in China and emerging markets PMIs. Certainly, the waning of financial market turbulence and global recession fears were positives and augmented by recently enacted central bank monetary policy support and the prospect of targeted fiscal stimulus measures. Even so, following the weak start to 2016, the full year global growth forecast remains unchanged at around 2.5%.

What About the UK?

Although Q1 already appears to be suffering from Brexit concerns, estimates for GDP growth have declined to around a 1.5% for the year, and the upcoming EU referendum vote will likely have its maximum impact in Q2. Household spending may well hold up but businesses will likely become more cautious on investment spending and hiring ahead of the vote. Given this uncertain background, downside risks prevail and full year forecasts are generally now a little below 2%.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK