Macro Weekly Will the global economy gain momentum?
Group Economics
Han de Jong +31 20 628 4201
22 May 2015 2015 is shaping up to be another year of more negative global growth surprises than positive ones. Financial market participants and policymakers have to ask how bad it really is. I would suggest to be patient. Global growth is perhaps not great, it is not a disaster either. And we continue to believe that growth will pick up. The picture that is likely to emerge in the course of the year is actually a relatively benign one with improving growth, modest inflation and central banks determined not to rock the boat. Recent data
in Japan was stronger in May than expected and registered its
The week just gone by was relatively light on economic data.
first rise after three monthly declines.
Eurozone data had consistently surprised positively earlier this year, but that pattern is now changing. Perhaps expectations
Big unknown
have adjusted to the relatively favourable performance or
The big unknown really is the US. After a disappointing start to
perhaps the tailwinds (oil, the euro exchange rate) have eased
the year the US economy was expected to bounce back as the
a little or perhaps the disappointments elsewhere are weighing
earlier weakness was thought to be caused by temporary
on activity. Nevertheless, I don’t think recent data is particularly
factors. Recent data, however, is unconvincing. This raises the
negative. Germany’s authoritative Ifo index of business
question as to whether we should still expect the economy to
confidence fell marginally in May (108.5 versus 108.6 in April).
gain momentum soon or whether there is a more fundamental problem.
German Ifo Index
Consumer spending has not been poor, but consumers have
115
certainly not (yet) spent their windfall from the lower oil prices.
110
Various theories are offered as explanation. Some suggest
105
that consumers are cautious because they continue to
100
strengthen their balance sheets. That is not very compelling to
95
me. Of course, if consumers do not spend their unexpected
90
gain in purchasing power the inevitable result is that the
85
savings rate rises and this can be seen as an strengthening of
80
balance sheets. The problem is that we do not know if the rise
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Source: Bloomberg
in the savings rate was intentional or happened by default. Looking at consumer confidence surveys it seems to me that it is hard to argue that consumers are particularly worried. So my guess would be that it is by default. This is a pattern we have
The long-term average for this series is 101.4 and its range
seen before following sharp declines in oil prices. So: let’s be
over the last 25 years has been 114-84. Having said that, it is
patient.
true that the forward-looking part of the survey has now fallen for two consecutive months. This is essentially a trend we see
Another explanation offered is that consumers will not spend
in many other indicators in the eurozone. I simply do not see
their windfall if they think that the drop in oil prices will not last.
why growth in the eurozone should weaken significantly in the
That could be the case. Indeed, oil prices have risen sharply
near term. In fact, I see reason for optimism. The credit
since their trough in January. On the other hand, we think
channel continues to unclog. And the recent preliminary PMIs
current conditions in the oil market suggest there is a
showed an improvement in the manufacturing sector after a
significant glut. In fact, we think that oil prices are more likely to
one-month decline. Manufacturing is more cyclical and tends
fall in the near term than to rise. In any event, we believe that
to be leading other sectors in the economy. The similar gauge
at least part of the fall in oil prices will prove to be durable. As