On a monthly basis Sasfin’s strategist identifies themes that we consider in our investment decision making process. Peak global growth was one of the key themes that were considered this month.
There are emergent signs that global growth may have reached a peak and could start to moderate over the next two years. Country-level indicators signal softening activity in many parts of the world economy, along with increased uncertainty and downside risks.
The JPMorgan Composite Global PMI peaked in May 2021 and has been declining since. In the Global Manufacturing PMI, the rates of growth in output, new orders and new export orders all slowed again, as the global upturn was stymied by rising supply chain constraints. The OECD leading indicator is still rising, but it is losing momentum and the US Dollar is strengthening, propelled by investors’ worries about global growth rather than cheer over U.S. prospects.
Investor sentiment indicators are also peaking, and European investors are raising their cash positions as Europe’s economic outlook cools. S&P500 operating earnings are forecast to slow from 36.5% year on year (YoY) in Q2:2021 to 3.3% in Q2:2022.
Macro issues weighing on the global outlook are China’s regulatory crackdown in its credit and internet markets and stricter restrictions to tackle the surging Delta variant infections. Chinese authorities have also cracked down on commodity price speculation which has caused prices to soften.
There are sustained supply chain disruptions which are negatively impacting airfreight capacity, and international shipping. Many companies are struggling to rebuild their inventory levels as demand improves after their liquidation in mid-2020. The result is a shortage of containers in the areas of demand. The uneven degree of coronavirus infections around the world is disrupting supply chains and production in key geographies such as China, Taiwan, Western Europe, and the US is being disrupted by extreme weather events.
The global economy is also facing a multiple-faceted transition in the Environmental, Social and Governance (ESG) areas which are causing industry disruption creating threats for deeply entrenched legacy sectors and opportunity for new adaptive businesses.
While global economic growth appears to have peaked and growth is slowing, there is still growth. Hopefully the frequency of extreme weather events ease in the quarters ahead and the supply chain disruptions fade as vaccination programmes progress allowing production and logistic supply chains to rebalance.