The forecast here at the start of the year was that global economic momentum – as measured by the six-month rate of change of industrial output in the G7 economies and seven large emerging economies – would continue to weaken through around July 2019. How is this forecast playing out?
Six-month output growth fell to a 33-month low in February but recovered in March – see first chart.
This recovery, however, reflected a surge in Chinese output, partly in compensation for weak activity in January / February but apparently also influenced by stockpiling of inputs ahead of April’s VAT cut – second chart.
Ex. China, global industrial output contracted in the six months to March: G7 output stagnated while production in the rest of the E7 fell at its fastest pace since 2015.
A Chinese April number is due this week and is likely to show a sharp reversal. Year-on-year growth of exports also spiked higher in March but slumped back close to January / February levels last month – third chart.
Assuming a Chinese relapse, G7 plus E7 six-month output growth should resume its fall, moving below the February low. The global manufacturing PMI is consistent with further weakness – fourth chart. The expectation here is that the six-month output change will bottom in negative territory and probably below the 2015 trough.