Global Economy's Synchronized Upswing Is Slowing Down

(Bloomberg View) -- A year after the world economy's synchronized boomlet was recognized, it's time to consider what the next chapter will be in the global economic story.

To many people, it feels like the good times just got going, with all the major players pulling in unison. After years of moderate, patchwork expansion from the great recession, 2017 saw just about all important economies pick up steam. The big heroes were Europe and Japan, which shed their labels as sclerotic and permanent decliners.

The mere fact the phrase "synchronized" has caught on should alone be cause for some worry. When the wisdom gets to be that conventional, it's about to be wrong.

The expansion will likely extend through its ninth year, but is unlikely to accelerate and looks set to slow from here. I'm not predicting a recession anytime soon. We do seem to be headed for as slower pace of growth. That may be born out when the International Monetary Fund, which was already starting to fret at its annual meeting in October, releases new forecasts in a few weeks.  

The cooling of global purchasing managers' indexes seems to be the clearest sign we are shifting down a gear. Both for manufacturing and services, the indexes still show a reasonable expansion. A year ago, these measures presaged better times. Now they are merely solid, and to be fair, coming off high levels.

Not a recession and not gathering steam. Not enough to cause central banks to halt their unwinding of stimulus or, as is the case in Japan, from stopping those secret internal discussions. That's fine; monetary chieftains shouldn't be so reactive. They are still mostly trying to rein in ultra-loose policy left over from the financial crisis, not curtail activity. That's a distinction often missed.  

This week, the manufacturing and nonmanufacturing gauges from the Institute for Supply Management in the U.S. slipped a bit. Not a big deal in itself. We saw a similar easing of momentum in the euro area. Asian PMIs, among the most sensitive to trade skirmishes, also weakened. Alan Ruskin at Deutsche Bank AG reckons that, at most, the latest numbers are "a very early warning shot for policy makers not to get too complacent on global growth resilience."

More broadly, there are deeper historical patterns that also warrant caution.

The current U.S. expansion is on track to be the longest ever, and it has to end sometime. The huge tax cuts Donald Trump signed into law in December bought the run a little more juice, but I doubt it's enough to defy broader trends. Each period since 1990 when the world economy achieved synchronized growth was followed by some kind of unpleasant economic surprise, according to HSBC Holdings Plc.

Last year was the first since 2010 that more than 30 countries out of 50 were growing above 10-year moving averages, HSBC calculates. Part of that was a bounce from the last recession's depths. Circumstances now are different.

The expansion has a mature whiff to it. Things can keep going for a while, but watch for subtle shifts. They may add up to something not so subtle.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss writes and edits articles on economics for Bloomberg View. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

To contact the author of this story: Daniel Moss at dmoss@bloomberg.net.

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