Charts of the Week: Almost Singing the Same Tune

The global business cycle A comparison of the latest composite PMI with its level 3 months ago reveals that activity in most major economies has been losing momentum. And the euro area – and Germany in particular – is at high risk of sliding back into recession. The exceptions to this concern the UK and Japan, where growth appears to have picked up a little compared with 3 months ago. India’s still-high composite PMI also stands out in suggesting that although growth has slowed, it has done so from a relatively robust level.

US and European consumer confidence As chart 1 above additionally suggests, latest PMI data equally suggest that the US economy has continued to perform well compared with many of its peers over the past 3 months. That said, there have been a number of other data points that have equally been amplifying concerns. One of these was this week’s survey from the Conference Board revealing a sharp decline in US consumer confidence in September. That latest surveys also reveal that euro area consumer confidence improved little in September also stands at odds with the messaging from the flash PMIs.

The UK manufacturing sector Other data releases this week have tended to support a more pessimistic take on the global economic outlook. South Korea’s trade data for the first 20 days of September, for example, revealed a broadly-based loss of momentum in its export growth. That chimed too with the messaging from this week’s German ifo survey. And it chimed too with the underlying details of the latest UK CBI Industrial Trends Survey showing a steep decline in export orders as well (chart 3).

China’s economic policies China’s economy has also been struggling in recent months, which is arguably another reason why global growth has been losing some momentum. But in an unexpected move to shore up its economy, China’s central bank Governor Pan announced a series of easing measures this week, including a 50 bps cut to the reserve requirement ratio and a 20 bps reduction in the 7-day reverse repo rate. Additionally, Pan hinted at a potential cut to the loan prime rate by 20 to 25 bps. However, he did not specify the timing of these measures. As chart 4 below suggests the initial market reaction to these policy decisions has been positive, with Chinese equity market rallying and government bond yields hovering close to record lows.

Good versus Services Inflation These easing initiatives from China coupled with the broader easing cycles that have been initiated by other central banks in recent months have left soft landing narratives in vogue in financial markets in recent days. Still, there are some issues that central banks need to ponder before lowering their policy rates too aggressively in the coming months, one of which is the still-lofty pace of service sector inflation in most advanced economies (chart 5).

AI and work automation The structural supply-side transformations that are unfolding in the world economy also create tremendous uncertainty about how monetary policy ought to be calibrated. One of these transformations, of course, concerns Artificial Intelligence. While this technology offers tremendous productivity-related promise, it could equally be destabilizing for labour markets in the period ahead. On that score, latest survey evidence from Yougov and sourced from the Our World in Data group for the US have revealed some mixed messages about how destabilizing it might be. Survey respondents were specifically asked, "How worried, if it all, are you that your type of work could be automated within your lifetime?" As chart 6 below suggests, around 64% of respondents were not that worried, but some 32% were either fairly worried or very worried.