SINGAPORE (Feb 18): Despite the growing pessimism, we think that many of us could be underestimating the chances of a turnaround in the global economy. This is not to question the evidence that the global economy is slowing, which is real, as we discuss below. Nor is it meant to dismiss the downside risks that have emerged. Our view is that the risks can be contained and there are several countervailing forces coming into play that should help crystallise a recovery in global economic activity in the second half of this year.
Yes, the near-term deceleration is real…
Recent data shows that manufacturing activity around the world is not only slowing but that the slowdown could persist for a few months more. For example, the global manufacturing Purchasing Managers’ Index has fallen to near a 30-month low in January. Worse still, the sub-index for new export orders — which tells us what the pipeline of future exports will be — declined for the fifth straight month. Drilling down to the big developed economies, we see a significant loss of momentum in the eurozone (weakest manufacturing since November 2014) and in Japan (lowest PMI level in 29 months). In both regions, new export orders declined, with Japan’s decline the sharpest in a year and a half. Only in the US do we see manufacturing activity remaining quite vibrant. In fact, the US ISM manufacturing PMI rose to 56.6 on Jan 19 from 54.3 on Dec 18 — but even here, export orders have weakened.
