LONDON: This week offers the first major gauge of the health of the global economy for May, with big implications for policymakers and investors banking on a steady pickup in activity during the second half of 2013.
Disappointing factory output and service sector data in April, particularly in the euro zone but also in the United States and China, have pointed to a world economy slowing after a pickup in the first quarter and a very weak end to 2012.
This week’s initial estimates of Purchasing Managers’ Indexes (PMIs) for China, the euro zone and the US are expected to show a slight pick up from April, but not enough to dispel fears of a sluggish outlook. The data, from survey compiler Markit, is due on May 23.
“We don’t think there will be a further acceleration of growth in the second or the third quarter. The first quarter was probably as good as it’s going to get,” said Andrew Kenningham senior global economist at Capital Economics.
Capital Economics estimate global growth was running at 2.9 percent in quarter-on-quarter annualised terms for January to March and expect the world economy to grow just 3 percent this year, little changed from 2012.
World economic activity slowed in April as measured by JPMorgan’s Global Total Output index, which dropped to 51.9 from 53.0 in March, although the index has now held above the 50 mark that divides growth from contraction for nearly four years.
The PMI data will likely show a growing divergence in economic performance around the world, pointing to relentless recession in the euro area, a recovery in the US restrained by fiscal tightening, and slowing growth in China.
The readout on the US economy will add fuel to a growing debate over when the Federal Reserve will begin tapering back its $85bn a month bond buying plan, which has been a major driver of a strong dollar and rising US Treasury bond yields.
“The flash US manufacturing PMI fell sharply in April, signalling the weakest pace of expansion in six month,” Chris Williamson, chief economist at Markit said.
More recent data on factory activity in the industrialised eastern states has added to the signs of a slowdown although weekly jobless claims numbers, which the Fed is likely to monitor closely, have pointed to strength in the labour market.
Reuters
