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Global Economy Perks Up as Goldman, JPMorgan Predict Rebound

Global Economy Perks Up as Goldman, JPMorgan Predict Rebound
Lucian Milasan | Dreamstime.com

Wednesday, 02 May 2018 12:51 PM

The world economy showed signs of stabilizing after a recent moderation as manufacturing activity strengthened for the first time this year.

A purchasing managers index for factories across more than 40 countries rose to 53.5 in April from March’s six-month low of 53.3, IHS Markit said in a report on Wednesday. Gauges of production and new orders both rose, though export growth slowed.

The numbers reinforce the advice from economists at Goldman Sachs and JPMorgan Chase not to bet against the world economy just yet. They could calm investors who spent the early part of 2018 fretting about a trade war and fading global growth despite forecasts from the International Monetary Fund for the fastest expansion this year since 2011.

“Forward-looking orders data point to solid output gains in coming months,” said David Hensley, director of global economic coordination at JPMorgan Chase in New York. He predicts global growth of 3.9 percent this year, the same pace as forecast by the IMF.

Economists led by Jan Hatzius at Goldman Sachs are even more optimistic, saying in a report this week that they are still looking for a 4.1 percent expansion worldwide in 2018.

At Deutsche Bank AG, currency strategist Alan Ruskin said the manufacturing figures should “play against fears of a more precipitous global slowdown,” although he noted the readings in many economies were below where they were three months ago.

“Even if the slowing has not ended for sure, the slowing has slowed,” he said.

One positive from a modest cooling is it could “mitigate some risks of overheating,” according to Ruskin. Some manufacturers have warned that they are running into capacity constraints, forcing them to raise prices.

There are still some reasons to be concerned. Growth in the euro area slowed to 0.4 percent in the first three months of the year, the weakest in six quarters, data showed Wednesday. In manufacturing, while the U.S. PMI hit the highest since 2014, the euro zone slipped to the lowest in more than a year.

Among the reasons to stay optimistic are that activity may have been restrained in the early part of 2018 by one-off factors such as poor weather, an outbreak of flu in Germany, strikes in France and the timings of Easter and holidays in China.

President Donald Trump’s tax cuts have also yet to fully take effect while tight labor markets should increasingly generate wage growth, underpinning consumer confidence and spending. Central banks are signaling they will lean towards supporting demand by taking care to remove the record low interest rates of the past decade.

“There is still scant evidence that we’re at a turning point in synchronized growth,” said Christian Keller, global head of economics research at Barclays Plc. “We think there has been a soft patch.”

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The world economy showed signs of stabilizing after a recent moderation as manufacturing activity strengthened for the first time this year.
global, economy, goldman, jpmorgan, predict, rebound
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2018-51-02
Wednesday, 02 May 2018 12:51 PM
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