Our proprietary indicator has declined further in July/August and even signals global trade to shrink somewhat. Although uncertainty is still high, our business cycle clock suggests no further deterioration. In July/August, the Global Leading Indicator by UniCredit was at a level of -0.4 standard deviations, its lowest level since November 2022, compared to zero in June.
Taken at face value, the latest figure signals global trade to shrink slightly by about 0.5-1.0% (on an annualized 3M/3M basis) compared to its average cruising speed of +4-5%. Note that our indicator led global trade by about two months on average in the past, i.e. global trade is set to decline somewhat in October. However, global trade data, which are available for June so far, already showed a deterioration after quite strong rises in the previous two months. How much worse will this downturn in global trade become? Our business cycle clock, which tracks the changes of the ten subcomponents included in our leading indicator, may give an indication, at least for the short-term.
According to economic theory and ideally, the subcomponents rotate clockwise over time from downturn to recovery, expansion, slowdown and back to downturn again. What catches the eye in August is that there has not been any deterioration (see charts 3 and 4 on next page).
The majority of sub-indicators has not moved further into downturn territory in the business cycle clock but has even improved a tad towards “no-man’s-land” where it is difficult to distinguish between the different business cycle regimes. Negative exemptions are the Ifo business expectations component and business confidence in the eurozone construction sector which have both continued to signal a downturn. The pattern in August could be the first signs of some leading indicators being in the process of bottoming out.
Needless to say, uncertainty is still high at this stage. Sometimes, indicators also jump back and forth, especially on a volatile monthly basis. We will continue to monitor the patterns closely and keep you updated.
