There are green shoots despite the slowdown in global economic activity over the past 18 months.
The pace of growth in global economic activity accelerated to a 10-month high in January, according to the latest PMI survey data. Growth is strengthening in both manufacturing and services and the pick-up is broad-based, with output growing in all economies covered in the surveys.
New orders recorded their strongest rise for 10 months in January, while business optimism rose to a nine-month high. Manufacturing growth was at its best since last April. Declining international trade volumes remain a headwind for the sector, but there are positive signs, too, with new export orders close to stabilising.
Activity is much stronger on the services side of economies. New orders and employment expanded at a healthy pace, while business sentiment has firmed considerably. The improving global backdrop, as well as reduced uncertainty around Brexit, have seen a marked improvement in Irish data. If we turn to the US, a pick-up in activity is also visible in survey data and robust labour market reports for the month. There are also signs of a rebound in activity in the UK. The global economy has started 2020 on a firmer footing.
Financial markets, though, remain cautious, and are pricing in rate cuts in the US and UK. Ten-year bond yields are down, while oil prices have fallen by 18%, and stock markets have turned more volatile. The main reason is the outbreak of the deadly coronavirus in China. With vital global supply lines likely to be impacted, it may have knock-on effects in other economies. ECB president, Christine Lagarde, warned last week that the virus outbreak is a potential risk to global growth.
We would expect a fall-back in global PMI surveys in February and March, snuffing out the green shoots of recovery for now.
We may have to wait until the spring or early summer to see if recent green shoots reappear and are real.
- Oliver Mangan is chief economist at AIB