Download Despite uncertainty, all regions of the world improving in 2017 with a

Market Insight
February 15, 2017
Despite uncertainty, all regions of the world improving
in 2017 with a focus on improvements led by China
Hajime Takata, Chief Economist
Mizuho Research Institute has upwardly revised our overall forecast for the World Economic Outlook in
2017. Reflecting on the message we presented in 2016, we noted (1) global slowdown, (2) the “3Ls”, protracted
“low growth, low inflation, low interest rates’ and (3) a stalemate in policy response. On the other hand, today’s
view of the world economy is that while the after-effects of the 3Ls linger, policies put forward by the new US
President Trump, such as large-scale tax cuts and infrastructure investment, have boosted the global trend to
focus on fiscal policy. The sense of worldwide slowdown that had continued up until 2016 have receded, and
there has been a boost from the upward bias in the manufacturing sector, particularly in the IT cycle. Although
the Trump Administration policy factors are being driven by expectations, there has been a much greater than
anticipated upswing in the global manufacturing cycle. Recent global conditions have generally been improving
in the US, Europe, emerging markets such as China, and in Japan for the first time since 2013. Furthermore,
rebounding from last year’s collapse, this year’s bottoming out of oil prices has provided confidence to the
financial markets. The main reason for such improvement in worldwide business sentiment can possibly be
attributed to the sharp recovery in the Chinese economy. On January 20, China reported an economic growth
rate of 6.7% for 2016, which was the first decline in 26 years, and there were concerns about a Chinese
economic downturn. However, the following chart presents the Li Keqiang Index, which tends to be more
indicative of the actual state of the economy, and the manufacturing PMI, which indicate global business
sentiment. The chart highlights the very strong correlation between the Li Keqiang Index and the world
manufacturing PMI. Of particular note is the strong correlation with the PMI of developed countries. Much of
the global adjustment since 2014 has no doubt been influenced by the adjustment in China. The downward
trend bottomed out from late 2015 to the beginning of 2016, almost exactly one year ago. The shift has been in
part due to China holding the position of presidency of the G20 in 2016, and undertaking major economic
stimulus, particularly through public investment. The economic stimulus also continues this year ahead of the
National Congress of the Communist Party of China in autumn. Therefore, it is highly likely that factors
contributing to global confidence will continue from 2017 to 2018. The markets are currently concealed by the
uncertainty caused by the Trump Administration, but it is important to realize that there has been a marked
improvement in real economic conditions.
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Market Insight
February 15, 2017
[ Chart 1: Manufacturing PMI for developed countries and emerging countries and
the Li Keqiang Index ]
(Pt)
Manufacturing PMI (World)
Manufacturing PMI (Developed Countries)
Manufacturing PMI (Emerging Markets)
Li Keqiang Index (rhs)
(Y-o-y % Change)
Expansion ←
16
58
14
56
12
10
54
Economy
8
52
6
4
50
→ Contraction
Source:
2
48
0
46
11
12
13
14
15
16
-2
17 (CY)
Made by Mizuho Research Institute Ltd. (MHRI) based upon Markit
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way meant to encourage readers to buy or sell financial instruments. Although this publication is
compiled on the basis of sources which we believe to be reliable and correct, the Mizuho Research
Institute does not warrant its accuracy and certainty. Readers are requested to exercise their own
judgment in the use of this publication. Please also note that the contents of this publication may be
subject to change without prior notice.
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