Daily Management Review

First Signs of Global Growth Stabilization Provided by OECD Lead Indicator


06/08/2016




First Signs of Global Growth Stabilization Provided by OECD Lead Indicator
Leading indicators released Wednesday by the Organization for Economic Cooperation and Development show that amid other signs that the global economy will avoid a significant slowdown in 2016, economic growth is set to steady in the U.S. over coming months.
 
A continued slowdown in the U.K. and Italy is expected by the Paris-based research body. It said that the economic information available for April form4ed the basis of its gauges of future economic activity.
 
But easing worries that a sharp slowdown is under way at a time when policy makers appear to be low on ammunition with which to boost activity, improved prospects for a number of large economies suggest the global outlook has brightened over recent months.
 
Slowdowns in Brazil, Russia, Germany and Japan were earlier pointed out by the OECD’s leading indicators. However, just months after a signs of a similar stabilization in Chinese growth, growth is set to steady in those countries in March as was confirmed by the April indicators.
 
The OECD said that there were “signs of stabilization” in economic growth as its leading indicator for the U.S. was unchanged for the third straight month at 98.9. Growth is said to be slower than normal when the reading is below 100.0 points. “Easing growth” in the world’s largest economy was pointed out as recently as March by the leading indicator.
 
The global economy is vulnerable to another deep downturn unless governments take urgent action, the OECD’s economists had said last week and the message from the leading indicators is in stark contrast to the earlier warning. The concerns were echoed by the World Bank on Tuesday.
 
The OECD’s leading indicators are mechanistically based on a variety of data series that have a history of anticipating swings in future economic activity and are designed to provide early signals of turning points between the acceleration and slowing of economic activity. Usually six to nine months after the indicators signal changes in economic activity, the changes on the ground are recorded.
 
In contrast to the economic indicators, the own judgments about the impact of events that may not have recent precedents influence the forecasts produced by economist at the OECD, the World Bank and the International Monetary Fund. The leading indicators do not account for those factors.
 
But it needs to stressed that a significant pickup in global economic growth for 2016 is not suggested by the leading indicators. But they do signal that central bankers may not need to add to their stimulus measures and that a widespread and sharp slowdown is unlikely.
 
The European Central Bank in March announced a package of measures designed to boost growth and inflation, partly in response to worries about the global outlook. While Sweden’s Riksbank and the Reserve Bank of India are among other central banks to have eased policy this calendar year, a similar action to that of the was taken by the European Central Bank was announced by te Bank of Japan in late January.
 
With the ECB last week indicating that it saw little need for further stimulus in the months head, the central banks have generally held their fire since the end of the first quarter. However, having had its bullish views of the underlying inflation trend in Japan shaken by a recent slew of weak price data, the Bank of Japan’s board will meet on June 15-16.
 
The bank should expand its asset purchase program this month, timing the move to coincide with a rebooting of Abenomics, said Etsuro Honda, a close adviser to Prime Minister Shinzo Abe.
 
(Source:www.wsj.com) 






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