Global Growth Momentum Slows

EghtesadOnline: Based on a slew of economic metrics that came out on March 3, the uptick in global economic growth carried on in February 2017. However, this view fails to reflect the complete picture–there are still some signs that the momentum in global growth is slowing down slightly.

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13 March 2017

The March 3 data suggests that global manufacturers had their busiest month in almost six years. The JP Morgan-HIS Markit Global PMI rose by a further 0.2 points, to 52.9, last month–the highest level in over six years, The Market Mogul reported.

The purchasing managers index is a measure of the change in activity levels across the global manufacturing sector. The metric ranges from 0 to 100, while a reading of 50 is considered to be neutral.

Naturally, anything above this neutral level is considered as a positive indication regarding an improvement in the manufacturing activity levels whereas a reading below 50 suggests that activity levels have fallen, according to Financial Tribune.

Furthermore, the distance from the neutral reading of 50 suggests how rapidly activity levels have improved or worsened with respect to the previous month’s levels. Therefore, it is safe to say that in February not only did manufacturing activity levels improve, but they did so at a quicker pace.

Although manufacturing makes up less than 20% of the economy in several key economies such as the United States and Britain, it is still a significant component and can often support services industries.

Services Sector: A Mixed Bag

Based on a survey conducted by Markit, growth in the United States services sector slowed down marginally last month versus January but still signaled fairly buoyant growth. However, things were not as upbeat in the Britain.

Data from the Markit/CIPS UK Services PMI was worrying as it showed that momentum slowed more than analysts had expected, therefore leading economists to issue warnings claiming that the Brexit vote to leave the EU is beginning to have an adverse impact on the UK economy.

A recovery in the global economy has been a key factor in pushing the stock markets higher. An increase in global activity makes it easier for firms to increase sales numbers and, consequently, increase profits.

While many investors mention US President Donald Trump’s prospective policies of lower taxes and less financial regulation as factors that will lead to an upward swing in stocks, however, many fail to acknowledge that a recovering global economy has been an equally important factor, if not more consequential, for stock markets.

Looking Ahead

Although global growth appears to be picking up speed, it still remains near historically low levels. Therefore, the data for the coming months will be consequential in determining how investors are likely to feel about economic conditions.

For instance, if the momentum gathered thus far were to fizzle out gradually over the next few months, the market will likely return to a state of worrying over low global economic growth.

Nevertheless, it seems that the UK is presently at a precipice: on one side lies the dark and doomed pit of low economic growth and on the other, a future with sustainable higher growth. The side the country ends up on remains to be seen.

Trump Tax Fiasco

The US fiscal and trade policies overhaul, promised by Trump, albeit likely having near-to-medium-term positive effects to the US economy, are poised to significantly reshape the international trade and even fiscal policies around the world.

The lower taxes in the US and higher customs tariffs on the US border will spur many other economies to implement measures similar to Trump’s planning in order to remain competitive.

Subsequently, the rising protectionism in trade and higher budget spending will drain the wealth of nations both in the advanced world and–perhaps, in an even more gruesome fashion–in the periphery.

Trump has repeatedly stated his intent to slap imports into the US with higher customs tariffs, up to 35% on goods of Mexican origin, and up to 45% on the Chinese shipments, in order to support domestic US manufacturers.