Global leading indicators continued to decline in July showing further signs of slowing growth in H2

Global leading indicators continued to decline in July showing further signs of slowing growth in H2. Especially, China is coming to a halt but US indicators also point to a more front-loaded slowdown. Europe has been the positive surprise with Germany looking strong.

We expect a further slowdown of leading indicators in coming quarters and there is a rising risk that global growth could slip below potential growth by year end

Summary and outlook

• Global leading indicators continued to decline in July showing further signs of slowing growth in H2. Especially, China is coming to a halt but US indicators also point to a more front-loaded slowdown. Europe has been the positive surprise with Germany looking strong. Commodity prices have recovered somewhat but overall still point to a slowdown. The Baltic Dry index is slightly higher but overall still at a low level.
• Indicators suggest a more front-loaded slowdown than expected. This is probably a consequence of the European debt crisis from spring and a stronger impact from Chinese tightening measures than previously expected.
• We expect a further gradual slowdown of leading indicators in H2 and there is a rising risk that global growth could slip below potential growth towards the end of the year. This points to continued high market volatility and downward pressure on bond yields as declining leading indicators will spur fears of a double-dip.

Details

• Global PMI new orders fell again in July to 54.0 from 55.7 in June. This was the third
  consecutive decline. However, the figures still point to growth slightly above trend.
• In the US, ISM fell again in July to 55.5. Our ISM model points to a broadly flat reading in
  the coming months and we expect it to reach 53-54 by year-end.
• Euroland delivered the only positive surprise as both PMI and the German ifo point to
  robust growth. German factory orders also paint an upbeat picture. However, some of the
  more forward-looking indicators could be a warning of slowing ahead. OECD’s leading
  indicator, the PMI order-inventory balance and German ZEW have come well off the
  peaks. Scandi leading indicators are slightly softer but generally point to decent growth
  rates.
• Asia is showing signs of slowing growth. Chinese PMI has shown the biggest deterioration
  with PMI new orders falling further below 50. Japanese industrial production has also
  stagnated after several quarters of sharp increases. CEE indicators continue to indicate
  strong growth rates, but some signs of slowdowns are also emerging. Activity in Brazil
  has stagnated a bit as both PMI and industrial production are weakening.