Inflation erodes growth and confuses the outlook

Our starting point for this year was that global growth would be ‘satisfactory’ and that it would once again be led primarily by China’s continuing import boom.

Admittedly, we have found that our specific growth forecasts – that a year ago were towards the high end of the spectrum – have in general been overtaken by the markets over recent months, with the result that our numbers are generally below the consensus but nevertheless we had ‘conceptually’ been looking for economic growth rates to be pleasingly positive and for capacity utilization rates to rise, potentially into ‘overheated territory’ in some cases.

However, we must admit that as we have conducted our various ‘due diligence’ individual country reviews over recent weeks, we have generally found that the data for real economic activity has been softer than even we had been expecting. If we had any notional starting point, it would have been to have expected to find growth but instead we have found the reverse.

For example, we find that our global PMI data had rolled over (albeit modestly), while we have also become aware that a number of published economic surprise indices seem to have turned down. At a national level, we note that the strength that was visible within the US retail data towards the end of last year seems to have given way and the data is once again tending to under-perform its post GFC trend.