Some continue to make the case that it is impossible to solve climate change without putting a stop to economic growth. The COVID-19 recession (which caused the largest drop in global GDP since at least 1961) reduced the combined emissions of the G7, China and India by 5%; but that drop was temporary, and emissions were higher in 2021 than 2019. Getting to net zero via weaker growth would require a COVID-19-sized recession year after year: a pathway likely to prove politically unpalatable at best. A better route to net zero would be through investment and technological innovation, not by

Evidence is mounting that the Chinese authorities may be willing to accept slower growth than was typical in the past. Hints about this came from the absence of an annual average growth target in China’s 14th Five-Year Plan for 2021-25, and with the setting of a growth target of ‘above 6%’ for 2021. The latter will appear quite high to many, particularly observers in western advanced economies; but it is not a hard target for China to achieve, given favourable base effects and the tailwinds as developed economies emerge from the COVID-19 pandemic. Data over the past several months have

Fathom’s measure of economic activity in China, the China Momentum Indicator (CMI), posted just 4.4% in July, suggesting that growth is a third weaker than official data imply. Refresh the chart in your browser | Edit chart in Datastream Contrary to some, we do not believe that this slowdown reflects a strategic decision by China to rebalance the economy at a time when any negative impact on growth can be blamed on US trade sanctions. Indeed, it is happening despite of a lack of ‘rebalancing’. Recent measures of consumer appetite reinforce the message. Real retail sales growth — one of the ten

This week, in a working paper, the IMF released its latest take on China’s efforts to rebalance, confirming our view, and the finding of our proprietary China Growth Strategy measure (CGS), that China threw in the towel on rebalancing in 2017. In recent months, this return to ‘old-model’ tactics has helped arrest the slowdown in China’s economic growth, which began late in 2017 and extended to July this year, with the latest reading from our China Momentum Indicator (CMI) unchanged from August’s 6.6%. Refresh the chart in your browser | Edit chart in Datastream Just four out of the CMI’s ten subcomponents

Fathom’s euro area nowcast model uses numerous high-frequency data to construct a timely estimate of euro area GDP growth. According to the model, the euro area economy is likely to have expanded by 0.4% in the third quarter. The currency bloc’s growth rate has undoubtedly slowed in the face of an uncertain global trade environment (net trade has been a drag on growth this year). Nevertheless, the pace of expansion remains solid and this, coupled with rising core inflation, should give the ECB sufficient confidence to cease net asset purchases in December. Refresh the chart in your browser | Edit chart in

Fathom’s Japan Economic Sentiment Indicator (ESI) rebounded to 4.1% in Q3, up from 3.9% in the previous quarter. The improvement in sentiment was driven by the industrial sector, with the manufacturing Tankan and manufacturing production surveys up on the quarter. However, several corporate sector surveys fell again in September, leading to a slight softening of the ESI for that month. Even though Q2 GDP was strong, there remains a gap between the ESI and economic growth, which we expect to continue to narrow. Refresh the chart in your browser | Edit chart in Datastream Despite attempts to improve bilateral relations, exemplified by

Last year, the euro area enjoyed the strongest year of its cyclical upswing, with GDP growing by 2.4%. However, data released for Q1 of this year have moderated slightly, suggesting that the momentum in the currency bloc’s expansion may slow in 2018. Further downward pressure on growth may also stem from tighter ECB policy towards the end of the year. Refresh the chart in your browser | Edit chart in Datastream To gauge the extent of this slowdown, Fathom’s Economic Sentiment Indicators (ESIs) aim to distil the responses to various consumer and business surveys into one composite measure. The indicators have been

The euro area has come a long way in the past five years. Back in 2012, financial markets were rattled by the prospect of sovereign default and government bond yields rose significantly as a result. Now the crisis years are behind us and leaders are in discussions about how to further enhance the currency bloc’s stability. Nevertheless, talk of a break-up is never too far from the press headlines. Refresh the chart in your browser | Edit chart in Datastream Fathom’s proprietary indicators, which estimate the unconditional market-implied probabilities of sovereign defaults occurring within the next five years, also peaked around 2012.

Fathom’s US Economic Sentiment Indicator (ESI) provides a powerful summary of various economic sentiment measures gauging the health of the macroeconomic cycle as well as market gyrations. Refresh the chart in your browser | Edit chart in Datastream Just as importantly, the US ESI also works well at highlighting periods of strong versus low risk-adjusted returns over the economic cycle at forward horizons of up to 12 months. This finding is driven by the ESI being a good proxy for systemic risk. At cyclical extremes, systemic risk tends to dominate asset returns for some time before mean reverting. Conversely, the impact of

Last week marked Fathom’s first Monetary Policy Forum of 2018, a quarterly event hosted by Thomson Reuters. It featured a debate between William Hynes and Brian Davidson, Fathom’s lead euro area and US economists, on whether Europe is set to outperform the US in the coming decades. They were joined by distinguished guest Paul Fisher, a former member of the Bank of England’s Monetary Policy Committee. Proceedings began with Brian Davidson laying out Fathom’s bullish near-term view on the US economy and predicting that President Trump’s tax cuts and spending plans will boost economic growth, both this year and next.

American consumer confidence, as measured by the Thomson Reuters/Ipsos Primary Consumer Sentiment, goes into March 2018 holding steady from the previously upward trend, standing pat at 63.1. Last month’s measure set a new post-Recession high and March will tie that mark. The stay in the index this month appears to derive from counterbalancing opinions on the current and future state of the economy. Consumer confidence in the current economy and in their current financial situation increased, but these increases were offset by decreases in confidence in the future economy and in future financial situations. To download the full report, click

The global economy is gathering steam. With one or two notable exceptions (the UK and, to a lesser extent, Japan), both the developed world and the developing world are enjoying above-trend growth — in some cases, a long way above trend. And the upswing has legs: in the US and the EA it is likely to run for another year or two at least, and in China perhaps for a bit longer. Other emerging economies will follow suit. Fathom’s Q3 global short-term forecast underlines this message. In our central forecast, global growth is up in the mid-3% range, with the