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Economy in Brief

LEIs Sour: Growth Rules Prospects Drool...
by Robert Brusca  April 11, 2022

The OECD leading economic indicator for the entire OECD region fell by 0.1% in March, matching its 0.1% decline in February. Over three months the index is falling at a 0.7% annual rate, the same pace as its decline over six months. Over 12 months it's rising by 2.7%. The standing of the index level is at the queue percentile standing at the 50% mark putting at exactly at its median - a neutral standing overall for growth prospects.

The index for the OECD-7 was flat in March after being flat in February. The index shows two declines, one over three months and another over six months with a 3% increase over 12 months. The index level standing is slightly better than for the whole of the OECD region at its 52.7 percentile.

The euro area shows a -0.1% reading for March, the same as February. Hit declines at a 1.4% annual rate over three months compared to minus 1.2% over six months and the 2.9% gain over 12 months, the index is at a 57.2 percentile standing for the euro area, a more moderate position.

For Japan, the OECD index is flat in both March and in February. It's flat over three months; it declines at a 0.1% pace over six months and is up by just 1.5% pace over 12 months. Its index logs a 65.8 percentile standing, marking it as stronger than the other OCED standing in the table. Japan's economy has been and remains sluggish.

The U.S. metric shows no change in March and no change in February with a 0.1% rise over three months. It logs a -0.2% change over six months and over 12 months at a 2.9% increase. The U.S. LEI has a 51-percentile standing based on its index level, leaving its leading economic index just slightly above its historic median and pointing to a 'normal' outlook for growth.

Evaluating six-month growth rates in the LEI
Taking a second look at these LEIs looking at them in terms of their six-month growth rates, which is the way the OECD likes to look at the indicators for their leading index properties, we find that in March all of these countries and these groupings show declines; when we add China to the mix it also shows a decline. In February, there is weakness across the board apart from Japan that's flat and the euro area that logs in at a 0.1% increase. Looking at the growth rates over six months for six-months ago, we see negative values for the U.S. and for China with small to modest positive percent changes for Japan, the euro area, and the OECD group as a whole as well as for the OECD-7. Looking at the assessments for 12-month growth that existed one-year ago, we see positive values across the board for all the countries and all the groupings including China.

However, we can also rank these growth rates. And ranking the growth rates on their recent six-month growth leaves every single one of them below their historic median that means a ranking below 50%. The strongest rankings from March are from Japan and the U.S. with each of them sporting a 44.2 percentile standing. The weakness ranking comes from the euro area at a 21.2 percentile standing, followed by a 27.4 percentile standing for the OECD area as a whole and a 29.8% standing for China alone.

The OECD leading indicators show great deal of sluggishness globally. The economies for the most part rank somewhere in the range of sluggish, weak, or declining. That is in terms of their outlook. We continue to see actual economic growth positive across the OECD area and even in China where the zero COVID policies have held back growth by quite a lot. However, the leading indicators warn about the future and these indications come amid a period where inflation has been flaring and with central banks beginning to become more restrictive. It continues to be an uneven patch for the global economy.

Table 1

Developing economies

Developing economies show a much greater breadth of weakness. Looking at Table 2 across a group of 13 developing economies, we see 69% of them are weaker in March than in February; in February 69% of them were weaker than in January; and in January nearly 72% of them were weaker than in December.

Over three months growth rates are nearly 77% of them are weaker compared to six months. Over six months 71% of them are weaker than over 12 months. Over 12 months only 43% of them are weaker than they were 12 months ago.

Looking at index levels, 61% show readings below 100 which indicates weakening in progress. There are only five countries with readings above 100: Mexico leads that group with a reading of 101.5 followed by Slovenia at 101.2; Turkey has a reading of 100.9 and South Korea is at 100.2 with India at 100.1. Even though five developing economies have readings above 100 indicating better growth ahead, few show much margin for error on that assessment.

The percentile standings are telling as well. With 61.5% of countries in the table showing values below their historic medians, there is a great deal of weakness in the outlook assessment. Indonesia, Hungry, and Brazil have rankings that are extremely low at or near the lower 10 percentile of their historic ranges. China is well below its 50% mark as is Chile. The Czech Republic, Poland, and Slovakia are also below near historic medians at rankings below 50%. On the stronger side, Slovenia at a 67% standing and Mexico at a 63% standing have the two strongest rankings in the table and these are only readings of modest strength.

Table 2

The bottom line on these indexes is that there is a great deal of weakness in the outlook among developing and emerging economies. The most developed economies are also struggling. There doesn't seem to be any country in the mix that has a clear path to continuing strong growth. And this is not surprising because economies have become increasingly linked so the globalization is a theme that brings all countries together. And that also causes countries to benefit from the same economic climates or to suffer from the economic climates. And right now, there is a global wave of inflation and central banks are acting to try to put that toothpaste back in the tube. The global pandemic still circulates with differential impacts around the globe. Disruptions from past pandemics dog supply chains continue to impede the global economy. And the war between Russia and Ukraine that kicked off in late-February and the sanctions imposed on Russia because of its aggression provided further weight on the global economy. The war also exacerbates supply chain issues as well as contributing to inflation by creating commodity scarcity and pushing those prices higher. It continues to be a difficult global environment.

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