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Global: Business Cycle Monitor

Wed, Oct 7 2009, 08:24 GMT
by Allan von Mehren

Danske Bank A/S

• Global leading indicators continue to point to robust growth in coming quarters. The picture was slightly more mixed in September, though, with some indicators pointing towards a peak in growth in Q1 10. This is broadly in line with our expectations that growth will be strongest in coming quarters but level off somewhat during 2010.
• Global PMI continued to improve in September, albeit at a slower pace than the previous months. PMI reached 54.3 this month and signals decent expansion in manufacturing.
• The Order-Inventory balance fell back slightly, which, with the normal lead of three to four months, points to a peak in growth in Q1 10. The leading New Orders index fell slightly to 55.1 from 55.7, mainly driven by a decline in the US. The Inventories index climbed to 44.0 from 40.6 in August. It still points to inventory reductions but at a slowing pace.
• In the US, ISM fell slightly to 52.6 from 52.9, led by a fall in New Orders. However, the New Orders index still points to around 4% GDP growth. Going forward, we expect to see further improvements in ISM. Our models suggest that the index will rise to 60 during the coming six months but it will probably follow a bumpier road from here.
• In Euroland PMI rose further but is still below 50. The orders-inventories balance still suggests that the overall index soon will break 50. This is confirmed by German factory orders which point to strong German GDP growth in Q3. In Scandi leading indicators improved a bit further but the pace of improvement slowed down slightly.
• 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 09. In the CEE countries the PMI order indices slowly climb towards 50.
• 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 level off from Q1 10.

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Published on  Wed, Oct 7 2009, 08:27 GMT