Where is growth going?

Posted by: Paul Donovan

29 Mar 2019
  • Bond markets moved a lot after a weak German manufacturing sentiment opinion poll. Bond yields fell as investors became negative about the economy. At the same time, equity investors have stayed more positive about the economic outlook.
  • This split in views mirrors a split in the data. Manufacturing sentiment data has been weak. However, sentiment data is not well correlated with the real economy.  Real world data has not been so weak. Global labor markets remain very strong. The ever-more important service sector of the global economy still seems in good health.
  • Manufacturing weakness has been focused. Germany caused almost three quarters of the recent slowdown in developed economy manufacturing. Other advanced economies have been nowhere near as weak. Investors need to ask whether Germany's problems are specific to Germany. They also need to ask if the problems will reverse.
  • German manufacturing weakness has been due to weak industrial goods production. Consumer goods production is normal. That is not a surprise. Weaker global investment spending has weakened German exports.  This was likely to lead to a slowdown in production. So investment spending is key. If global investment spending gets better, sentiment data and manufacturing data should get better.

Explore more CIO Daily Updates