The global economy is heading into the New Year with improved momentum, based largely on business spending and manufacturing.
Earlier this year business confidence in the major countries had risen above the boom/bust line for the first time since 2011. Improved sentiment has historically gone hand-in-hand with stronger capital goods orders. We were worried by the pullback in confidence in the months leading up to the squabbles in Washington over the budget and debt ceiling in October. However, the November PMI figures suggest that no permanent damage was done. Indeed, U.S. durable goods orders were solid in November.
The developed economies remain the primary driver so far. The acceleration in G7 nominal import growth, reaching 7% in November, underscores that domestic demand is picking up. Industrial production in China and Japan are responding, although production and exports in the smaller Asian economies remain lackluster so far. U.S. export orders shot through the roof in November, helping to explain the rebound in American CEO sentiment in the fourth quarter.
Bottom Line: We will need to see stronger job gains in the new year to confirm that the latest upswing in global activity will be sustainable, but we continue to forecast upside economic surprises relative to consensus expectations in several major economies.
