Source: Fidelity International, March 2019

No green shoots for developed markets

All the major developed markets of the Eurozone, Japan and the US are slowing markedly. While the US GEAR edged down to a post-2016 low of 2.8 per cent, it remains the highest reading among the developed markets.

Japan’s GEAR plunged to -0.8 percent, hitting a low not seen since its 2014 VAT hike. All components of the measure, except for shipments, dropped in in the past quarter. Weak exports led the downturn, suggesting that external factors are a key driver, but Japan’s economy is showing broad signs of frailty after a resilient 2018.

The Eurozone was not far behind. At 0.7 per cent, Eurozone GEAR remains very weak, making new five-year lows. France, at 1.1 per cent, may have stabilised after a prolonged downtrend, although it is stuck around its lowest level in over two years, hampered by faltering trade. Italy, at 0.3 per cent, remains the weakest among its European peers, on weak industrial production and negative survey data.

Meanwhile Germany, at 1.4 per cent, is trending lower in line with wider Eurozone weakness. The UK looks stuck in a broad downtrend, despite its GEAR edging up to 1.6 per cent.

Bouncing emerging markets

Most of the stability has come from emerging markets. Latin America has been a source of strength especially Brazil with a GEAR at 5.5 per cent. The country surged to eight-year highs buoyed by positive momentum from late 2018. Mexico GEAR, at 1.1 per cent, managed to bounce out of contraction but remains consistent with very subdued growth.

China is still far below its 2018 peak, but appears healthier than it did at the December low, when retail and auto sales simply couldn’t get much worse. Meanwhile Turkey remains in recessionary territory, but the very worst appears to be behind it.

Overall, the Fidelity Leading Indicator suggests the slowdown in developed economies will continue. It remains to be seen whether emerging markets will keep up the momentum that has helped stabilise global growth, especially given that any credit pick-up seen in China is unlikely to feed through for another quarter or two.

Ian Samson

Ian Samson

Portfolio Manager

Giulio Rossi

Giulio Rossi

Investment Graduate