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Global: Business Cycle Monitor

Tue, Nov 3 2009, 11:25 GMT
by Allan von Mehren

Danske Bank A/S

• Leading indicators continued to improve in November. Some regions still show signs of softness in the indicators, while US and Asia continue to look strong.
• Global PMI continued its expansion in October with a reading of 55.7, the highest level since June 2007
• The Order-Inventory balance continued its reduction. The difference is still positive however, and with the normal lead of 3-4 months points to a peak in growth in Q1. The leading New Orders index fell slightly to 54.9 from 55.1. The Inventories index climbed to 44.9 from 43.9 in August, primarily driven by a fairly large increase in the US. It still points to inventory reductions, albeit at a slower pace.
• In the US ISM rebounded with a reading of 55.7 from September’s reading of 52.6. The increase was driven by solid improvements in all subcomponents. However, Production and Employment posted the most positive surprises. Going forward we expect to see further improvements in ISM with a year-end target of 60. The decline in the Order- Inventory balance indicates that future improvement is likely to take place at a slower pace.
• In Euroland PMI finally broke the important 50 level with a reading of 50.7. The Order- Inventory balance remains very favourable, pointing to further improvement in the PMI. In UK the New Orders index rose to 59.5, the highest level since January 2004. In Scandi leading indicators improved a bit further, but the pace of improvement slowed down a bit.
• Asia continues to look strong, but shows signs of moderation in production growth. Chinese PMI reveals some underlying slowdown from the very high growth rates in H1 2009. In the EMEA countries the PMI data continue to look soft and Russia is still the weak link among the BRIC countries.
• Outlook: We expect global PMI indices to rise further in coming months, although it will probably be a more uneven path from here. We expect that the speed of improvement in OECD’s leading indicators will start to moderate soon as we are also witnessing in the order-inventory balances in the PMI data. This confirms our expectation that global growth will be strong in the short term, but will level off from Q1 2010

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Published on  Tue, Nov 3 2009, 11:25 GMT