THE WORST may be over for the global economy, according to the UBS Global Economic Scorecard published this month.
Even though the indicators show a slowing contraction rather than any expansion, UBS economists believe it is evidence that a modest global recovery may evolve later this year.
What are the indicators on the UBS scorecard?
Firstly, global growth and global consumption have improved and this is underscored by better economic conditions in the US, Asia and Latin America.
Secondly, positive data surprises have emerged from the US and from Asia in recent weeks. These include consumer and housing releases trending toward positive surprises in the US as well as trade and output data outperforming consensus expectations in Asia.
A US recovery is significant as the slide in global trade volumes, particularly over the past half a year, was due to the plummet in US consumption demand.
Thirdly, global purchasing managers’ index of manufacturing show a much healthier balance between inventory and new orders.
This suggests that the worst of the downturn in the industrial output cycle may be behind us.
However, investors should note that these improvements have occurred from an extremely weak base.
That is, the contractions in demand, output and trade that unfolded in the final few months of last year and the early weeks of 2009 have been unprecedented in modern times.
It would be foolhardy to have expected these contractions to go on indefinitely.
The second inter-related caveat is that while much of the recent survey evidence concerning economic activity is certainly less negative, it would be wrong to describe it as the stuff of genuine recovery.
Purchasing manager surveys still indicate that manufacturing output is contracting, that new orders are falling, and that a de-stocking cycle is incomplete.
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