Yesterday’s jobs report highlighted weakness in the U.S. economy.Europe is sinking deeper into recession, though the ECB has momentarily stabilised financial markets.
Fears of a hard landing in China are rising fast as economic data continues its downward trajectory.
JP Morgan economists Bruce Kasman, David Hensley, and Joseph Lupton, however, say it looks like we’ve reached a bottom, and they expect global economic growth to stabilise shortly.
In a note to clients, they write:
With this week’s August PMI release and new information on July activity, the DFM-Eco index estimate of current quarter growth rose to 1.8%. Interestingly, the rise in our nowcaster is driven by July activity readings that were stronger than what was anticipated by the July PMI. The index estimate is now in line with our bottom-up forecast (2%) that looks for a stabilisation of global growth this quarter.
With growth bottoming, attention now turns to assessing whether private sector behaviour and policy stances are aligned to deliver the modest lift built into the forecast. Our forecast does not expect much in the way of growth, with global GDP expected to accelerate only a touch to a still-subpar 2.4% annualized pace in pace in 4Q12. In this regard, the recent data have been mixed, raising more “maybes” than certainties. The news from consumers remains upbeat. Our estimates of current quarter global consumption growth was lifted again this week as July readings were firm and auto sales reports for August surprised to the upside. Although less broad-based, it appears that the pace of global inventory accumulation has slowed.
However, JPMorgan acknowledges the cause for concern at the macro data level as well:
At the same time, a further slide in our global August PMI along with a disappointing US employment report raises concern that business spending and hiring may be slowing more sharply than expected. And with rising food and energy prices set to translate into higher inflation ahead—to be highlighted by an expected 0.7% m/m rise in the US August CPI next week—the lift in global consumer spending should not be expected to last much longer.
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