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Trading  | August 4, 2017

For all the talk about a “coordinated global recovery”, it may come as a surprise that 57% of the acceleration in global GDP this year has come from a handful of commodity exporters (those whose food/metals/fuel exports are > 40% of total), which together combine for just 17% of global GDP growth. A slightly different way of looking at the same data, is that 66% of the global acceleration in GDP is due entirely to emerging markets.

Another way of representing the dramatic reliance on Emerging Markets for global economic growth: in 2017 the EM vs DM contribution to growth was split roughly 75%/25%, while as shown in the charts below, the gap between EM and DM manufacturing PMIs is at an all time high!

The above data is courtesy of a new 2-minute global macro recap launched today by UBS, which contains various other notable – and largely unknown – observations on the current state of the economy.

Among some of the other key observations we highlight the following:

  • Surveys (soft data) overstated actual growth in developed markets by 70bp in Q1 and we estimate by 50bp in Q2. Worse, surveys in EM signal no acceleration (Fig 5) and manufacturing PMI gap against DM is at its widest ever as noted above.
  • Global growth is 100bp below ’03-’07 boom years’ but only 30bp below ’97-’07. It is also at its 50y average (Fig 1), which is not too bad given the weakness in productivity, but with considerable help from central banks. What’s the difference between the 30bps and 100bps delta? Commodity exporters, which added an additional 45bp to global growth during ’03-’07 that they have not added since or indeed prior to that period. 

  • More accounting gimmicks: this year’s global growth aggregates are nearly 60bp higher than in 2008 purely because of changes in GDP weights (despite trend slowdown in Chinese growth, a growing weight because it still outpaces others).
  • The commodity cycle explains most of the recent volatility in global trade.  Since early 2015 nominal global exports have improved by 21pp (from roughly -14% to +7%) but 17 ½ pp of that improvement (i.e. 83% of total) was due to prices rather than volumes. In other words, only 3 ½ pp of the 21pp improvement in nominal global export growth since Q1-15 was driven by an improvement in volume demand
  • >70% of the global export volume recovery seems to be driven by EM but >80% of the global IP recovery is due to DM

  • Since February global inflation has fallen by 58bp , of which 42bp is softness in commodities (and being past the peak of base effects)
  • Almost the entire global fall in core inflation globally ( 16bp since February) is due to just 4 countries (US, Brazil, Russia, India) which have only a 35% weight in the global total. In other words, while core inflation is generally moving sideways (but lower in the US, Brazil, Russia and India), non-core prices have been whipped around by commodity (and related FX) movements. In DM, non-core prices went from a 90bp average drag in ’15-’16 to a 40bp inflation addition in ’17 (YTD), i.e. a 130bp swing. In EM, the pattern is flipped (+17bp in 2015-2016 and -23bp YTD), as currency weakness was net inflationary during the commodity fall and disinflationary during the recovery.

  • Rotation in global credit growth: DM credit growth improved from a 1.5% average during 2010-2015 to 4% now and EM credit growth (ex-China) declined from nearly 15% in 2010-2015 to 5% now. That’s a 13pp increase in DM’s contribution to global credit growth and a 8pp reduction in the contribution from EM ex-China. In other words, Q1 was the 1st quarter the DM private sector collectively re-levered since the crisis– the end of bank balance sheet restructuring is prompting a recovery in credit growth

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