Overview
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Our proprietary Gauges of Economic Activity in Real-Time (GEARs) show the latest Global GEAR, an unweighted average of all countries, looks stable and decently above its recent lows. However, this disguises some significant divergence among economies, with the US rebounding, the Eurozone stabilising, and China slowing.
Source: Fidelity International, June 2019
Pickup in the US, stabilisation in Europe
After a significant slowdown at the start of the year, the US GEAR has picked up substantially. However, this has been driven narrowly by a consumer rebound, and consumer sentiment also remains buoyant. Instead, the sharp slowdown seen in the US industrial sector and softer labour market data may give us a better signal as to the direction from here.
Source: Fidelity International, June 2019
The Eurozone GEAR has also found a foothold, following 2018’s deceleration. It has been dead flat at a near-trend 1.3 per cent for a good few months now. The key contributors to this stabilisation have been trade data and industrial new orders, suggesting a nascent turnaround in the external cycle. That said, some of the more trade-sensitive European economies - Germany, Sweden, Switzerland - continue to slow and make new lows.
China slows again
More worrying is that the engine of global trade, China, has reversed most of its recent recovery - falling back to the 5 per cent range. The slowdown has been broad, with a variety of indicators such as truck sales, freight volumes, electricity consumption and investment all turning downwards. On the other hand, real estate data have remained surprisingly strong, as credit and policy restrictions are loosened.
But if we were to see China’s activity move another leg lower from here, any bull case for global growth in the second half would start to look precarious. Let’s hope earlier bouts of stimulus start to feed through to the real economy, and that trade talks between Donald Trump and Xi Jinping at next week’s G20 meeting in Osaka don’t derail everything.
