Fragile global bottoming or double-dip in progress?

Our prior post titled “World Recession Update” depicted the percentage of 41 countries tracked around the globe that were printing 1 or 2 consecutive negative quarters of GDP growth. It is easy to view the data presented and come to the alarming conclusion the world is accelerating  into an ever-deepening recession and the U.S is bound to follow soon.

However there are two sides to this coin and when we inspect the Leading Economic Indicators (LEI’s) of the 41 countries in question we see that the Global LEI dipped below zero into recession territory in July 2011, bottomed in Dec 2011 and rose above zero in Sept 2012:
REFLECTIONS_10_03_2013_1B
Also, the percentage of countries with positive LEI’s (black line in chart depicting expansion) seemingly bottomed in March 2012. However it is evident that unlike the prior recession, the black line has not zoomed up in tandem with the blue line implying that the global LEI rise only has a few large contributors such as U.S, Canada, Germany, Italy, Australia and U.K to thank for its recent rise. The LEI rebound therefore lacks broad-based participation at this point which is a cause for concern.

A long-term version of the chart above that we maintain for clients implies the blue line crossing zero on left axis should be confirmed with the black line crossing 0.5 on the right axis to enable robust inferences on global recession or expansion. Thus, when at least 50% of countries have LEI’s above zero, we can breathe easier but for now this is still white-knuckled riding the rapids “edge of the seat” stuff.

Looking at the level of the blue line and that of the black line, a world “double-dip” scenario does not seem out of the question if LEI data does not improve in the ensuing months. The lacklustre performance of the Chinese and Indian LEI’s is especially worrying.

About RecessionALERT

Dwaine has a Bachelor of Science honors degree and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.
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