Global economy still outpacing market expectations

Econoday’s Relative Economic Performance Index (RPI) closed out last week at 30, showing global economic activity running quite well ahead of market forecasts. Although the U.S. index remained close to zero and its Canadian counterpart moved deeper into negative territory, the Eurozone and, in particular, China continued to outperform.

In the U.S., the RPI and RPI-P both ended the period little changed at 1, indicating that the overall economy is essentially matching expectations. The latest readings duly support the Federal Reserve’s decision to cut interest rates by just 25 basis points.

In Canada, the labour market proved a little softer than anticipated in October and trimmed the RPI to minus 30 and the RPI-P to minus 24. Economic activity in general, and inflation in particular, continue to favour another cut in Bank of Canada interest rates in December.

In the Eurozone, the RPI (18) and RPI-P (8) lost a little ground but remained in positive surprise territory with Germany (RPI 21) extending its period of outperformance. The region’s overall economic activity is running slightly ahead of market expectations, but not to the extent that would prevent another 25 basis point ease by the European Central Bank next month.

In the UK, the data were again mainly on the soft side of forecasts. With the RPI at now minus 25 and the RPI-P at minus 30, the latest reports provide additional justification for the widely expected cut in Bank Rate.

In Switzerland, October’s labour market lived up to expectations, but surprisingly soft consumer confidence ensured that the RPI (minus 31) and RPI-P (minus 25) slipped further below zero. There is still nothing in the data to dent speculation about the Swiss National Bank easing policy again in December.

In Japan, surprisingly weak household spending was not enough to prevent the RPI creeping up to 10. With the RPI-P now at minus 1, economic activity in general is performing much as forecast and investors remain uncertain about when the central bank will tighten again. Ahead of Thursday’s third quarter GDP update, the yen will be a major focal point this week.

In China, signs of unexpectedly strong activity in October, in part due to surging exports, boosted both the RPI and RPI-P to 86, the latter’s strongest print so far in 2024. Recent stimulus packages seem to have helped confidence but international trade relations could be more of a threat to growth following the U.S. presidential election.

Econoday’s RPI provides a handy summary measure of how an economy has recently been evolving relative to market expectations.
A reading above zero means that the economy in general has been performing more strongly than expected and vice versa for a reading below zero. The closer is the value to the maximum (+100) or minimum (-100) levels, the greater is the degree to which markets have been under- or over-estimating economic activity. A zero outturn would imply that, on average, the market consensus has been correct. Note too that the index is sensitized to place extra weight upon those indicators that investors consider to be the most important.