Global momentum stabilising on schedule
Simon Ward
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The base-case forecast here is that the global economy will regain momentum during the second half in lagged response to faster G7 real money growth since early 2011 and as Japanese supply-chain disruption unwinds. This should be signalled by a stabilisation and recovery in manufacturing surveys.
June purchasing managers’ survey results fit the story. G7 weighted-average new orders fell slightly further last month but this reflected weakness in Euroland, with US, Japanese and UK indices improving. Eurozone underperformance is consistent with lagging monetary growth discussed in previous posts.
A bottoming of G7-wide momentum is also suggested by a stabilisation of developed-market company earnings revisions – see first chart.
US manufacturing fluctuations continue to follow the pattern of previous recoveries – second chart. The cyclical template also suggests improvement, consistent with the message from monetary trends.
While global momentum is expected to revive, growth is likely to be slower than during 2009 and 2010 because of Eurozone weakness and less dynamic expansion in emerging economies, reflecting restrictive monetary policies. In contrast to the G7, E7 real narrow money growth has continued to slow recently – third chart.
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