The OECD leading indicators for developed countries are yet to lose any momentum in the last few months, suggesting prospects for growth here remains solid. Growth profiles in emerging markets remaining more concerning. The prospects for China remain most important, but are less clear in these leading indicator data.
The leading indicators are not foolproof and have been revised through time to better capture turning points and trends in GDP growth. At the moment, there are no wobbles in the indicators for the US, Europe or Japan. Some of the US data in particular has been a bit weaker more recently, although only the ISM index is material in the construction of this index.
With no signs of even an inflection point in Japan or Europe, growth looks like it has remained on the road to recovery.
The "fragile 5" emerging market economies which have garnered so much attention in FX markets have relative diverse growth profiles. India and Turkey remain on the way down, while the index for South Africa has shown its first signs of rolling over.
Brazil and Indonesia have been posting sub-trend growth, although there are the first signs that conditions have stabilised.
The immediate challenge for these economies is not so much to convince markets of growth prospects in the near term, but rather than they are credibly keeping inflation and external borrowing under control. This is why central banks in these parts of the world have been hiking interest rates.
It appears that these economies don't have large unhedged foreign currency debts, which is the biggest problem during currency collapses. But it still seems that establishing credibility will take some time.
The spillover effects from the problems in the fragile 5 shouldn't be too much of a speed bump to the global economy. Indeed, when comparing the scale of problems in the last few years, this one is small compared to what is still going on the in EU.
Growth prospects in China, however, will have a much more meaningful impact on global growth.
The OECD leading indicator for China is not as useful as elsewhere. At the moment it is pointing to stable, but sub-trend growth.
If anything it looks like things are weakening and policy is tightening. The base case should be for a continued steady slowdown in growth. While that may not be disastrous, the risk of something more nasty rises as the prospects for growth weaken. Therefore its best to remain cautious on China despite the stability seen in these OECD data.
