Chief Economist, Bank of Singapore
Member of OCBC Wealth Panel
Claims that the bounce in economic activity is only evident in the “soft data” are inaccurate. It is certainly the case that “soft” data on business and consumer confidence has rebounded strongly in recent months – especially in America – but “hard” data has also improved.
Financial markets often use purchasing manager indices (PMIs) as an easy guide to the economic cycle. These have the advantage of providing a timely and broad insight into individual economies. We recently saw flash releases for May, supporting our view that the momentum behind the recent bounce is starting to fade.
However, PMIs are “soft” in that they are not measuring actual production of goods, or spending in shops, or hiring of workers. Also note that PMIs are produced by private firms, which lack the depth of resources or statistical sophistication of most government agencies.
“Hard” data typically takes longer to compile, so is less timely, although one compensation is that it offers a rich amount of detail, which can help us to understand the dynamics of the cycle.
The latest release for global trade and industrial production shows that the recent bounce in the economic news flow was not purely an improvement in sentiment. The data only runs as far as March, but it shows a clear pick-up in both trade and output over the previous six months, after a couple of sluggish years.
The same rebound has been seen in the trade and production data of various individual economies around Asia and, more generally, helps to explain the lift away from the risk of deflation.
The recent rebound in activity was driven by a convergence of factors, many of which look relatively short-lived. Policy stimulus in China, a bounce in commodity prices and a sharp technology cycle are just some of the recent positives that seem likely to fade in coming months. This means that the current situation is about “as good as it gets” and momentum will fade. This is already evident in the economic surprise index, which shows that economic releases are no longer coming in ahead of expectations.
This conclusion is not particularly sinister. Slower growth momentum is not the same as suggesting a slide back into recession. Normally, recessions are caused by external shocks, or by tight policy. In most developed economies, fiscal policy is roughly neutral while monetary policy is still very accommodative, which means that the current expansion should continue.
Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).
The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.
In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.
OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.
All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.