An upturn in the global goods cycle has historically been a positive catalyst for some downtrodden markets such as EM equities and commodities.
A feature of the unusual global economic cycle in the post-pandemic era is that the world has been full of surprises as activity has become less synchronised. At the country level, China is only just coming out of its zero-Covid policy. Meanwhile, other emerging markets (EM) are about to start cutting interest rates as inflation subsides, whereas many developed markets (DM) are still tightening policy in the fight against inflation.
There has also been a major divergence at the sector level, where services have been performing strongly, while the goods side of the global economy has been weak. The goods side of the global economy fared well during the initial phase of the Covid-19 pandemic as healthcare requirements and lockdowns concentrated demand into the sector. However, it has lagged behind as economies have reopened and demand has rebalanced towards services, turbo-charged by large fiscal stimulus.
Indeed, according to data compiled by the Netherlands Bureau for Economic Policy Analysis (known as the CPB), global industrial production has been largely stagnant since the end of 2021 and has been in recession in advanced economies since the third quarter of last year. EM have fared a bit better, but only really because of mini-booms in output around lockdowns in China.
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