China GEAR ‘shock’
Absolute GEAR levels do not make for particularly pleasant reading. The developed market (DM) average is hovering around its lowest since mid-2016. The emerging market (EM) average is even lower - this is the first time since the global financial crisis that EMs have lagged their DM counterparts.
Worryingly, our China GEAR, at 4.8 per cent, continued to plunge led by shocking trade data. Individual components are negative across the board; business surveys mildly so, while real estate-related inputs were all weaker after a robust year. The economic uncertainty index continued to worsen significantly at the latest reading. Investment data now looks like the only somewhat resilient area.
Japan GEAR, at 2.2 per cent, has been holding up, suggesting that we should see a return to growth after third quarter’s GDP contraction. Hard data has been improving significantly, including trade, industrial production and labour market indicators. Business surveys remain relatively unchanged.
Source: Fidelity International, January 2019.
US GEAR: nothing dramatic, yet
US GEAR remained below 4 per cent for the second consecutive month. This indicates some mild softening and initial signs of slowing economic performance, but nothing dramatic yet.
The data is mixed, with weakness coming from a sharp drop in business surveys. However, the overall reading still points to strength relative to the rest of the world, driven by positive consumer data as retail sales strengthened.
Eurozone extends downtrend
Eurozone GEAR, at 1.2 per cent, has been falling steadily, as fears of technical recessions in Germany and Italy emerged. However, our GEAR clearly is some way from recessionary territory.
While Spain has stayed relatively stable, all other major countries play their part in Eurozone’s downward trajectory. France GEAR, at 0.6 per cent, has fallen most drastically, with weakness widespread across all components except unemployment, which recorded a marginally stronger reading.
Italy GEAR, at 0.4 per cent, is down at its worst reading in two years, as unemployment worsened. Not a single component moved higher. Germany GEAR, at 1.6 per cent, is holding up better, but nonetheless hit its lowest figure in over three years. That said, it is certainly not consistent with the contraction seen in third quarter GDP. UK GEAR at 1.2 per cent points to continued weakness, sitting at five-year lows.