Consumers around the world are generally more upbeat, but not uniformly so
Last week the IMF released its World Economic Outlook Update for the October 2009 forecast. The global economy is expected to grow 3.9% in 2010, an 0.8% upward revision. In fact, the 2010 growth projections were generally upward with little offset in 2011 (often when you get a surprise and positive economic release, the current period forecast improves at the cost of growth later in the forecast):
- The 2010 U.S. growth Update is 1.2%-points above the October level, now 2.7%.
- The Eurozone GDP growth Updated to 1% pace in 2010, up 233% from October’s forecast (driven by the 400% surge of Germany’s GDP growth outlook, now 1.5% in 2010).
- Canada’s GDP growth forecast got a slight bump, up 0.5%-points to 2.6%.
- The UK is now expected to grow at a 1.3% annual pace in 2010.
- Russia’s Update to GDP growth is 3.6% in 2010 (that’s off of a sharp 9% drop in 2009).
- And the IMF envisages that China maintain 10% growth in 2010, up 1%-point from its forecast just 3 months ago.
The IMF has no crystal ball, but the story is compelling: banking crisis + global recession = weak recovery. However, it is improbable that the IMF is spot on. The short IMF press release stresses the divergent path of economic recovery across the advanced and developing world. In short, much of the emerging and developing world should recover smartly, while key advanced economies, burdened by debt and financial stress, are to see a more muted recovery.
Of note is the IMF’s listed upside risk to the growth forecast (thus inflation, trade, and other related variables):
On the upside, the reversal of the confidence crisis and the reduction in uncertainty may continue to foster a stronger-than-expected improvement in financial market sentiment and prompt a larger-than-expected rebound in capital flows, trade, and private demand.
Confidence, consumer, investor, and business, is key – let’s focus on the consumer. The one that accounts for roughly 17% of global GDP – i.e., the U.S. consumer – remains afflicted by excessive debt burden and record unemployment. In contrast, consumer confidence is rebounding smartly in other parts of the world, developed and developing.
Advanced consumers showing some confidence, but the U.S. consumer confidence index remains 39% below that during the onset of the recession.
The chart illustrates various measures of consumer confidence across a selection of advanced economies (you can see the exact sources here). Consumer confidence in the U.S., U.K., Germany, and Ireland remain well short of their Jan. 2008 levels. Notably, confidence in the U.S. has moved laterally since May 2009 despite recent gains in the fourth quarter of 2009.
Confidence in some emerging economies remains muted as well.
I chose a selection of monthly confidence indicators for select emerging markets. Clearly, some biggies are missing – India and South Korea being the first on the list – but data availability and/or frequency precludes a more thorough analysis.
Consumers in Indonesia are ostensibly more upbeat than those in other emerging economies. In China, consumer confidence hovers below its Jan 2008 level. And in spite of the bubbles and wealth talk in China, confidence hasn’t been this low since 2003. In Brazil, consumer confidence is back to peak levels before the onset of the U.S. recession.
I provided a snapshot of global consumer confidence. Generally consumers do portray the ongoing confidence struggle, especially in the U.S., that plays out in the IMF’s muted growth forecast.
The level of consumer confidence is secondary to the direction.
But even if you consider the level important, remember that the level of real activity is also lower.
Auto sales are a good example. Consumer confidence is a very important determinant of auto sales.
But sales of 12 million would be a good boost from 2009 levels and 12 million sales is entirely consistent with the current level of consumer confidence. The drop in confidence from the 90s in 2007 to the 60s in 2009 lead auto sales down. Now the rebound in confidence to the 70s now, vs below 60 at the bottom and hopefully to higher levels later in 2010, should lead auto sales up from its bottom in 2009.
If we know about consumer confidence we know everything we need to know about an economy. It’s the key to everything.
HI Spencer,
I believe that you are commenting on this statement: Advanced consumers showing some confidence, but the U.S. consumer confidence index remains 39% below that during the onset of the recession.
I agree – the level is unimportant, per se. However, the trend does not look good (i.e., the lateral shift in the U.S.).
Of other note is the construction of the index. For example, the ISM manufacturing index came out strong (54.9 in December vs. 58.4 in Jan), suggesting a starker rebound in industry activity. However, the index is so heavily weighted toward the larger firms (small business confidence is still way down), that the index may overstate the amount of production that is implied by such a report.
In looking at many of these reports – there was some diversity across economies regarding the “current” situation vs. “expectations” portion of the index. It still seems to be just a mixed bag, in my view.
I’m still game for upside surprises! And the U.S. GDP report certainly looked a little brighter. But the jury is still very much out on this recovery – globally, in fact.
Rebecca
I wanted to follow up on the comment I made above: Of other note is the construction of the index. For example, the ISM manufacturing index came out strong (54.9 in December vs. 58.4 in Jan), suggesting a starker rebound in industry activity. However, the index is so heavily weighted toward the larger firms (small business confidence is still way down), that the index may overstate the amount of production that is implied by such a report.
This is not necessarily my view – just a criticism that is out there. Ther new orders index, which is a very reliable indicator of future economic activity, suggests that the rebound is gaining traction.
Rebecca
I wanted to follow up on the comment I made above: Of other note is the construction of the index. For example, the ISM manufacturing index came out strong (54.9 in December vs. 58.4 in Jan), suggesting a starker rebound in industry activity. However, the index is so heavily weighted toward the larger firms (small business confidence is still way down), that the index may overstate the amount of production that is implied by such a report.
This is not necessarily my view – just a criticism that is out there. The new orders index, which is a very reliable indicator of future economic activity, suggests that the rebound is gaining traction.
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