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Citi

Is Global Growth Holding Up?

Despite indication of slowing growth in Developed Markets, Emerging markets are showing some encouraging signs.

 

Emerging markets are showing some encouraging signs - Citi analysts note that China contractor order intake – a good leading indicator of commodity demand for infrastructure – has turned. This suggests stimulus may be starting to have a positive impact.

 

The latest indicators suggest US growth remains firm - ISM non-manufacturing for January indicated healthy expansion in the services sector. The labor market remains solid and positive news on US-China trade talks is making markets less nervous. Of note, the Fed’s 1Q19 Senior Loan Officer Survey showed a relative tightening of credit conditions

 

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Capital is flowing into EMs, pushed in part by a more dovish Fed - EM funds enjoyed their 17th week of inflow. Most of the inflows went to GEM funds which had US$3.1bn of inflow. LatAm and EMEA funds also had inflows of US$280mn and US$66mn respectively. Asia funds had a net outflow of US$300mn but China funds managed to attract US$275mn of inflow.

 

The data for Europe struck a negative tone this week - German factory orders and industrial production both disappointed, while the January services PMI data point to below-potential and divergent growth. Further, leading indicators suggest the outlook is not too bright and it looks like European financial conditions are not as loose as they used to be.

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