This article is a follow on from my previous article a roundup of leading economic indicators. That article focuses on the US. However I recently came upon this chart of the leading indicators for the major economies of the world from the OECD, part of which is included in the previous article. (You can link to the full OECD data below here.
Click to enlarge.
I wrote an article here suggesting that the US could avoid a recession in Europe. However, the chart above highlights that what we are experiencing at the moment is not a European slowdown; it is a world slowdown that involves all of the major 20 economies in the world. World GDP on a PPP basis is projected to be $78.58 trillion in 2011, the G20 share of that is projected at $64.38 trillion or 81.9% of world GDP. This table suggests that 81.9% of the world economy is slowing.
Most of the Latin American and Asian countries are slowing their economies to reduce high levels of inflation. Inflation seems to have peaked in China and Brazil, but not yet in India. We can reasonably expect easier monetary policies in these economies, which may mute the effects of the growth slowdown. However, that is not true in Japan, the US and all of Europe.
Conclusion
All investors should keep tabs on the above link. It is updated every 3 months, with the next update in March. The Conference Board produces leading indicators for some of the major economies here each month. Its present position:
| Country/Region | Change | Date |
|---|---|---|
| Australia | +0.6% | 19 Dec. 2011 |
| China | -0.1% | 13 Dec. 2011 |
| Euro Area | 0.0% | 21 Dec. 2011 |
| France | +0.5% | 19 Dec. 2011 |
| Germany | +0.3% | 20 Dec. 2011 |
| Japan | +1.1% | 06 Dec. 2011 |
| Korea | 0.0% | 07 Dec. 2011 |
| Mexico | -0.5% | 21 Dec. 2011 |
| Spain | -0.2% | 14 Dec. 2011 |
| U.K. | -0.4% | 09 Dec. 2011 |
| U.S. | +0.5% | 22 Dec. 2011 |
This is not as negative as the OECD, but is not as comprehensive, either. However, it is much more up to date, being updated in December. If you were to be optimistic, you could suggest that the data in the OECD chart is getting less negative in October for most of the economies, and the up-to-date data from the Conference Board paints a mixed picture. It is therefore not certain that the slowing will continue to get worse, it may just be a soft spot in a generally growing World economy. However it does put the recent comments from Christine Lagarde -- "The world economy is in a dangerous situation" -- into context.
If the world economy slows the US will not avoid the effects. The US projected budget deficit for 2012 is $1101bln a reduction of $198bln from 2011. In this environment a world slowdown would come on top of weakening government spending.
If these figures do not improve soon, and the Conference Board starts to mirror the OECD, we are going to have a world slowdown. I would advise all investors to keep up to date with these leading indicators, especially if they are long the market as they may be signaling a significant turning point. I can only see the S&P500 going down if there is a world slowdown.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I am long RWM.
Disclaimer: This article is not intended as investment advice. Before taking any action, please do your own research. Do not rely on any opinions or facts included in this article for decision making.
