Early hard data bode ill for Q1

World GDP growth was little changed at 3.1% annualised in Q4 as the euro-zone posted another modest expansion, US growth slowed from a strong pace and a pick-up in Japanese GDP offset part of Q3’s decline. But hard data for January have been disappointing on the whole. Industrial production and retail sales fell sharply in the US and Japan, while a rise in sales in the euro-zone followed an equal-sized fall in December. Some survey indicators including the composite PMIs rose in February, but their levels are typically still lower than in the fourth quarter. While service sector growth may have regained some pace in the advanced economies, the downturn in manufacturing appears to have worsened. Among the EMs, growth strengthened in more economies than it weakened in Q4 and the manufacturing PMIs rebounded in February. But available hard data have revealed a sharp drop in auto sales, suggesting the domestic demand has weakened. Together with a continued fall in export orders, this supports our view that EM growth will continue to slow.