Yesterday’s leading indicators for September, including manufacturing PMIs for the US, much of Europe and Japan, showed the global economy is on course to remain very solid until early 2018, Julius Baer says.
Economist Susan Joho says the PMIs “reached new intermediary highs”, highlighting the strength of the US economy in particular:
“The US index was particularly surprising as it spiked to a new high despite fallouts and higher prices from two hurricanes in the past month. The US economy is most advanced in its economic recovery, so continued fast grow could finally start to have a mildly inflationary impact later in 2018, strengthening the case for further, albeit gradual US rate normalisation.”
The likelihood of a December rate hike in the US is now strong, but it is still early for a similar move in the Eurozone, Joho notes. That said, the sustained economic momentum in the region will probably mean a reduction of the monthly asset purchases on the part of the ECB from the start of 2018. Joho explains:
“The recovery appears genuine, with not only leading Germany but also peripheral eurozone economies such as Greece seeing moderate economic growth. Moreover, eastern European economies are booming as they profit from Germany’s strength and stand at the brink of raising interest rates.”
Japan is also performing very well, supported by a weak yen and good demand for its exports, Joho says, pointing out that “the sustained growth recovery of the previous 1.5 years is slowly bringing back consumer confidence and with it domestic demand.”
The economic success of the past months “could support Prime Minister Abe in his attempt to gain again a majority in the upcoming elections by the end of October,” she says.
With regard to China, Joho highlights the “mixed but still rather optimistic picture from China’s PMIs,” referring to divergences between the official indicator from the National Bureau of Statistics and the private survey carried out by Caixin. Joho’s conclusion is:
“While we do expect a mild cooling of Chinese growth later in Q4, this will be a very controlled and gradual process.”
