NOTE : The following charts are extracts from our monthly Global Economy Report available with a standard subscription.
Global Economic Activity slowing at the fastest pace since 2011
The cumulative GDP growth for the 4 quarters of 2018 for all 41 major countries covered by the OECD display a stark contrast between the best and worst performers:
The G20 and U.S are comfortably above the OECD average, whilst the EU is uncomfortably below average, no doubt due to low growth from the German and Franco blocs. Argentina is surprising given the low level of press afforded such shocking growth numbers, whilst India overshadowed China. The battle between India and China is interesting if you look at the below chart:
China has been steadily declining, whilst despite recent weakness from Q2-2016 for India, her trend is still up.
Looking at the major GDP-weighted trading blocs is also interesting with BRICs and EM naturally at the top of the pile and G7 below the OECD average since Q1-2015. Of note is how South Africa, a member of both BRICs and EM, is a perennial under-performer of these two trading Blocs.
Here is a look at the quarter-on-quarter GDP growths. Canada, Germany, Portugal, U.K and Russia are all flirting with a potential negative Q1-2019 print given their current trends. Also of interest is how the whole of Europe (representing 25.8% of global GDP) is flirting with stagnant GDP growth and a possible negative GDP print for Q1-2019. Apart from Argentina we see that economic powerhouse Italy with roughly 3,2% of global GDP is in technical recession as well as Turkey.
All the GDP data is heavily lagged and rearward looking. For higher-frequency co-incident monthly data we like to examine total World Economic Activity that looks at both Trade Volume (average of imports and exports) and Industrial Production, as taken from the CPB World Trade Database. It is clear that Total World Economic Activity is slowing at the highest pace in a decade, despite a welcome improvement in January 2019 (click for larger views)
The main culprits are Europe, the Emerging Economies and the entire Africa & Middle East bloc:
So we have seen the lagging data (GDP) and the co-incident data (Economic Activity) and none of it looks great. What lies ahead for the future? The country-level Leading Economic data is not that promising either. We are already in a well established global economic business cycle downturn and while there have been recent promising signs from the percentage of countries posting rises in their LEI’s (a leading indicator of the World LEI) it is still too early to be proclaiming any global business cycle troughs:
The prognosis is that we should expect things to get worse before they start getting any better on the global stage. In light of the (rare) warning we issued a while back regarding U.S stock market valuations, it is our opinion that it would be prudent for U.S investors to err on the side of caution for now, despite what any US stock market rallies dish up to the contrary.
The U.S bond market seems to concur, with some 60% of all potential term-spreads having inverted already:
Note that once the yield-curve complex starts inverting, it rarely un-inverts itself. Despite this stark warning, remember that it is a single long-leading indicator with significant variances in lead times to historical recession which makes it far less useful to the market-timer than meets the eye.
NOTE : The above charts are extracts from our monthly Global Economy Report available with a standard subscription.