Hong Kong: All together now.
2017 is shaping up to be the most synchronised year of global growth since the immediate aftermath of the last recession, in a development that could ease the burden on the US as the world’s economic engine.
From robust Chinese factory data to faster inflation in Germany, just about all major economies are running at a decent clip — if not accelerating.
Look no further than the latest purchasing managers index data, according to Reinhard Cluse, chief European economist at UBS Group AG in London.
The Institute for Supply Management’s US factory index climbed to 57.7 in February, the sixth straight advance, while data also show Euro-area manufacturing accelerating for a sixth month in February and China’s official factory gauge firming.
“There is clearly hope of better synchronised growth worldwide,” Cluse said. “The acceleration in manufacturing PMIs reflects optimism that the global economy has really picked up pace.”
A synchronised expansion means the global economy doesn’t need to rely as much on the US for growth, which could ease the upward pressure on the dollar. Faster growth around the world also should help to narrow US trade deficits that along with a weaker dollar could defuse some of the rising trade tensions that have emerged under President Donald Trump.
Momentum gathering
And there is evidence that momentum is gathering in much of the world. Economic confidence in the euro area is stronger than it has been since before the debt crisis in 2011, and while unemployment remains double the US level, it has been falling faster than anticipated. Asia’s trade recovery is being driven by looser monetary policy and China’s stimulus that was rolled out last year amid fears of a sharp slowdown.
Spreads between 10-year bonds and two-year bonds are about the same in both the euro area and the US. That’s the first time that’s happened since 2012.
No Group of 20 economy is expected to post a decline in output this year, according to Bloomberg economist surveys. If confirmed by data, it would be the first time since 2010 without a contraction. In fact, 12 G-20 economies are expected to see growth accelerate or stay the same in 2017, which would be the most since 2010.
Chetan Ahya, global co-head of economics and chief Asia economist at Morgan Stanley in Hong Kong, says this year is shaping up as the first synchronous acceleration in both developed and emerging markets since 2010.
“With the headwinds from emerging markets abating, a synchronous recovery in global growth is now under way and should bring about faster reflation too,” according to Ahya. “As a result, developed market central banks’ policy cycle is now shifting, with the risks tilted towards a tighter policy stance, keeping upward pressures on core bond yields.”
Chinese factories
Signs of that momentum were evident Wednesday with data showing some of the region’s biggest economies are gaining traction. China’s official manufacturing gauge for February beat expectations amid a rebound in producer prices, giving room for policymakers to focus on reining in excessive lending.
South Korean exports rose for a fourth month in February, fuelled by sales of semiconductors and petroleum products, not to mention a surge in Chinese demand for cosmetics. In Japan, corporate profits hit another record while growth in Australia exceeded projections. Data late Tuesday from India was also more upbeat than economists had anticipated.
“It certainly looks to be synchronised — but not just in North Asia,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd, which manages about $127 billion.
“It’s pretty much a global phenomenon and has been underway since around mid last year.”
The euro region’s economy too continued to surprise on Wednesday.
Factory activity rose to the highest level in almost six years, driven not only by Germany, the region’s economic powerhouse, but also by strong readings in Italy and Spain.
To be sure, there are plenty of risks to the outlook, starting with a series of European elections that will see gains by parties who want to potentially scrap the euro.
First to the polls will be Netherlands, followed by Germany, France and possibly Italy.
In all those countries, populist parties are set to make inroads, threatening to reopen the debate about the future of the euro.
Brexit negotiations that the UK government plans to trigger by the end of March also add to potential pitfalls.
Remaining cautious
“Cyclical indicators have been very strong so far and export countries have received a boost by external conditions,” said Simon Wells, chief European economist at HSBC Holdings Plc in London.
“But there is a lot of political uncertainty that may deter a large turnaround for investment and, without it, we remain cautious that this is really a turning point.”
Consumers who have been driving the global expansion to date also may be less robust, and may be taking a hit just as monetary policy begins tightening.
For example, President Mario Draghi’s line that the European Central Bank will see through a short-lived spike in prices may come under further pressure in inflation-averse Germany and elsewhere as the economy continues to beat expectations.
Back across the Atlantic, slower spending by US consumers and on construction prompted some economists to lower first-quarter growth estimates, suggesting America’s expansion isn’t as fast as the post-election surge in consumer and business sentiment would suggest.
It’s not all upside in Asia either. Some of the data there is being given a gloss by weaker comparisons from a year earlier. And heightened trade tensions between the US and China could slow the region’s recovery. US. Commerce Secretary Wilbur Ross on Tuesday promised tougher enforcement of existing trade rules with China and other nations.
Either way, a global economy that is taking a bigger share of growth couldn’t have come at a better time.
