- Goods demand has slowed but is stable. Services are doing very well globally.
- Trade cycle is humming, with Asian exporters’ order books looking good.
- US/EU cycle may be maturing, Asia is still on the post-pandemic upswing and investment surge.
- Nowcasting estimates show healthy 3Q economic growth in major economies.
- US labour market, focus of much attention lately, is slowing but remains strong. No panic needed.
Related Insights
Commentary: Assessing global momentum
There is rising clamour in the markets for easier monetary policy around the narrative of slowing economic growth momentum. To assess the state of the global economy, a few considerations are key:
First, goods demand, which, after major pandemic induced volatility in the past few years, has stabilised. It is, however, by no means reflecting substantial stress in affordability on the demand side or earnings on the producers’ side. PMI manufacturing is still hovering around 50 globally. The services sector, meanwhile, continues to roar ahead, characterised by strong 50+ PMI readings.
Second, the global trade cycle, which, despite weak commodity prices, continues to hum along. Supply chain expansion, friend-and-nearshoring, industrial policy, and the AI tech cycle have fuelled substantial demand for parts, machinery, and electronics. From China to Singapore, South Korea to Taiwan to Vietnam, exports are growing by high-single to double-digit rates. Order books are in good shape too.
Third, the state of the cycle. US and EU may be showing signs of a maturing cycle, having grown on the back of strong public sector-supported spending the last few years, it is far from that case in Asia. The region is still undergoing the process of post-pandemic normalisation of its travel/tourism industry. The region is also benefitting from supply chain realignment, with investments rising from both Western and Chinese companies.
Real time estimates show key economies growing at trend rates. A snapshot of 3Q Nowcasting shows India at +7% real GDP growth, Indonesia: +5%, China: a tad below 5%, Singapore: +2.5%, and the US: +2%. These number by no means indicate a global economy at risk of a major slowdown.
US labour market looms about all else, goes the market narrative. Recent dataflow, showing a reduced pace of hiring and decline in vacancy rates, supports Fed rate cuts to begin from this month onward. We think Fed officials will look at these developments along with the fact that the labour force continues to expand, bringing in previously discouraged workers to the fray, and hourly wage growth is well ahead of inflation. With unemployment at low-4%, these data are supportive of an economy with still-strong underpinning for consumption. Kansas Fed’s labour market conditions indicators suggest the level of activity is little changed (above historical averages), although momentum decelerated moderately in July.
We find little to warrant major policy response to support the global economic cycle. It may not be red hot, but the ongoing cooling is orderly. No panic response needed whatsoever.
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