Global: Business Cycle Monitor

Summary and outlook

Global indicators have disappointed with Europe being the only pillar of strength. Data in US and China has been weak lately. The US has so far failed to see a boost from the big oil price decline, although there are some tentative signs of recovery in the Markit PMIs. China has seen its weakest growth since 2009 in recent months.
We see more downside risk in US ISM in the short term followed by recovery over the summer. Euro area PMIs are set to rise a bit further as signalled by leading indicators. In China, we look for stabilisation and bottoming out during the summer on the back of more policy stimulus.

Details

The US economy has lost further momentum lately. Most indicators have disappointed with the ISM index and the OECD’s leading indicator moving lower. Our models point to more downside for the ISM in the short term. However, there may be a ray of light in the Markit PMI, which has recovered in recent months. It turned ahead of ISM on the way down during the autumn and thus a turn higher could indicate recovery over the summer. A survey of credit access by the National Association of Credit Management suggests credit standards have tightened significantly in early 2015. This should be watched in the coming months, not least to see if it is replicated in the Fed Senior Loan Officer Survey, due 4 May.
In contrast, euro area indicators are strong and point to accelerating growth in H1. The OECD leading indicator continues to rise at a decent pace while ZEW, Ifo expectations and real M1 points toward a strengthening recovery during the year.
Chinese data is showing no signs of recovery yet – but at the same time it doesn’t point to a hard landing either. Real M2 growth continues to move broadly sideways while PMI has been a bit weak lately. In Japan, PMIs and industrial production have been soft lately while the OECD’s leading indicator points to moderate growth.
In Scandinavia, the picture remains mixed across the countries. Swedish surveys have lost some strength and Danish manufacturing confidence remains lacklustre. In Norwary, PMIs and industrial production have weakened.

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