Outlook for major economies: Mixed bag!

 EmailPrint This Post Print This Post

With the October PMIs under the belt I had another look at what to expect on the economic front with regard to economic growth in the major economic regions.

The outlook for the Eurozone is grim. The recovery since the great financial crisis of 2008/2009 has been sub-par compared to what my GDP-weighted PMI for the Eurozone suggested. In the graph below the PMI indicates that the growth in GDP in the third quarter is likely to be in the vicinity of 0.8% compared to a year ago. That means that in the third quarter the economy shrank by 0.5% or at an annualized rate of 2%. The situation in the fourth quarter is significantly worse as year-on-year GDP growth is likely to be a negative 0.5%. This implies that the economy has contracted at a rate of 1.7% from the third quarter – a massive 4.7% annualized!

Sources: Dismal Scientist; Markit; Plexus Asset Management.

The Eurozone is therefore firmly in the grip of a recession. The German IFO Business Expectations Index indicates that the Eurozone economy will face further headwinds going into the first quarter next year.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

In the U.S. the current level of the ISM GDP-weighted PMI (manufacturing and non-manufacturing) is consistent with year-on-year GDP growth of 1.5 – 2.0%. I expect year-on-year growth of about 1.75% in the fourth quarter – up slightly from 1.6% in the third quarter. On a quarter-on-quarter annualized basis I therefore expect a slight acceleration to 2.86% from 2.46% in the third quarter.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

Japan’s GDP probably stopped contracting in the third quarter and may have expanded for the first time since the third quarter of last year. The manufacturing PMI also indicates a further but tepid expansion in the Japanese economy.

Sources: Dismal Scientist; Markit; Plexus Asset Management

The GDP-weighted CFLP PMI (manufacturing and non-manufacturing) for China indicates further weakening of GDP growth on a year-ago basis to below 9%.

Sources: Dismal Scientist; CGLP; Li & Fung; Plexus Asset Management.

The fortunes of China’s economy and especially the manufacturing sector remain closely tied to those of Japan.

Sources: CFLP; Li & Fung; Markit; Plexus Asset Management

The U.K. economy is heading for a recession. The GDP-weighted PMI that I calculate indicates that year-on-year GDP growth in the fourth quarter has stagnated, if not contracted. I estimate that the economy has probably contracted by approximately 1% or an annualized rate of more than 4% from the third quarter.

Sources: Dismal Scientist; Markit; Plexus Asset Management.

To summarize:

Japan: expanding at last

China: growth slowing

U.S.: slight acceleration in growth

Eurozone: in deepening recession

U.K.: entering recession

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

OverSeas Radio Network

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>




Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones

One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

November 2011
« Oct Dec »

Feed the Bull