Baku, Azerbaijan, March 29
By Anvar Mammadov - Trend:
There are more and more signs that global growth might have reached a peak, Saxo Bank experts believe.
Presently, analysts are struggling to find reasons for higher inflation and start to realize that the global synchronized growth is not happening, Saxo Bank told Trend.
"The hopes of reflation proved to be short-lived despite fears of trade war. In the G7-countries, average inflation has been stable around 1.7% over the past year and in BRICS+Indonesia, where inflationary pressures are traditionally higher, we observe a clear convergence of inflation rates with developed countries. Inflation in emerging countries is running at its lowest level since the GFC at only 3.2% YoY.
On the other hand, there are more and more signs that global growth might have reached a peak. Slowdown has already started in China as credit impulse have turned south since the beginning of 2017. It is currently running at minus 2.11% of GDP, after reaching a lowest point since 2010 in Q1 last year," the bank reported.
Meanwhile, Saxo Bank analysts believe that China’s deleveraging is premeditated and it will be monitored in the future by Wang Qishan.
"This close allied of President Xi has been appointed vice-president at the beginning of March after a successful fight against corruption. Although his competences are not questioned, the deleveraging process can derail at any time due to China’s wall of debt. One of the key weakness points is the real estate sector which has been disproportionately fueled by inflow of loans over the past years. Since China’s credit impulse leads house prices by three quarters as we see below we can expect further downward pressure on prices in the course of the year. The tricky task for China is to lower prices without triggering a collapse of the market that would weaken the entire banking and financial system. Banks’ dependence on real estate loans is dangerously high: over the past twenty years, real estate and banks have a stunning correlation of near 0.90," the bank said.
In other parts of the world, according to Saxo Bank, the economic outlook is not brighter. There are little signs that Trump’s tax reform will extend much the business cycle.
" In addition, Q1 GDP is unlikely to come out rosy: durable goods and retail sale have started the year down and there has been no clue of tax bill inspired capex boom yet. The only hope is to have a productivity miracle which is, objectively, quite unlikely. All of our leading indicators _ contraction in US credit impulse, lower but not yet negative C&I loans growth and flattening yield curve (US 10v30 swap spread almost inverted!) are indicating that the United States is close to the end of the cycle," according to the bank.
But certainly the most unpleasant surprise comes from the euro area. The growth momentum is much stronger than in most other regions but recent data from Markit and the European Commission seem to indicate that growth has certainly reached a plateau, the Bank noted.
"Citi Eurozone Economic Surprise Index has collapsed in Q1, adding downward pressure on European stocks. The index is currently the lowest among G10, at -57.9. The euro area remains too export-dependent and demand is still too weak. In addition, the euro area crisis is far from being over: looking at Spain and Italy’s trade balances, we notice that most of the improvement is due to higher extra-euro area demand and a weak currency. The restoration of competitiveness is still a work in progress in many European countries. Weaker growth is happening at the worst time because risks are popping up everything. We are facing a unique combination of rising geopolitical risk, higher global protectionism coupled with monetary policy tightening," Saxo Bank said.