Newspaper headlines continue to highlight how the Covid-19 pandemic is still raging and the mayhem it is causing. These concerns about the pandemic have led many institutions, such as the Asian Development Bank, to issue decidedly downbeat forecasts for the world economy, thus adding to the gloom. But this pessimism might be overdone. After all, there are several lead indicators that point to a decent recovery in the big economies that essentially determine where the global economy is heading. Moreover, we find that the forces that are shaping this recovery are durable. Even with this recovery though, Asia faces some headwinds. In particular, recovering demand in large economies may not translate into stronger Asian exports because the appetite for foreign goods in those countries seems to be falling. And that means that governments in Asia still need to maintain policy support to ensure that the recovery is sustained.

Lead indicators speak of a global recovery, which underlying forces can sustain

The OECD’s lead indicators (LIs) have a credible track record in predicting the course of the economic cycle. So, it is encouraging to see the latest batch of OECD LI indicators foretelling an uptick in the world economy. The overall composite lead indicator rose in July with almost every developed country and major emerging economy recording higher LIs. Moreover, surveys of purchasing managers show order books swelling again among the world’s manufacturers, meaning that higher production is on the way. The various member banks of the US Federal Reserve Bank are predicting annualised expansion of third quarter US economic output to be anywhere between 15% and 30%, after the 32% slump in the second quarter. These same agencies see the rebound continuing at a slower but still healthy pace in the final quarter of the year.

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