World GDP growth seems to have slowed sharply in Q1, but the latest business surveys suggest that growth has bottomed out in some parts of the world at least. March’s unchanged global manufacturing PMI masked a stark divergence between the advanced and emerging economies. While falls in the US and particularly euro-zone indices drove the advanced-economy manufacturing PMI down further, a rise in China’s PMI caused the emerging economy index to rebound sharply. If it’s true that a good deal of the weakness in global manufacturing has stemmed from China, then this is a very positive sign. However, we suspect that some of the recent upturn in China has related to front-loaded fiscal support. With credit growth still easing and given signs of weakness in the property sector, we think that Chinese activity will slow again in the near term. Meanwhile, there are very few signs of improvement in the euro-zone and the US has clearly been suffering from previous interest rate hikes and the fading fiscal boost. Those hoping for an imminent rebound in global growth are therefore likely to be disappointed.
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