OECD indicator points to downturns in UK and China

There could be more economic turbulence ahead according to the latest OECD leading indicator data, which combine a number of leading indicators of economic activity (e.g., building approvals, share prices, terms of trade) into a single indicator for each of the OECD economies:

The outlook given by the CLIs [Composite Leading Indicators] for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn. Stronger signals of a peak are emerging in the United States. For Germany, Japan and Russia the CLI points to a continuation of the expansion phase.

The downturn in China may cause some concern, but China analysts actually welcome it, as the Chinese economy was over-heating and hence at risk of an even more severe downturn if it didn’t start to slow.  See, for example, this piece in the Business Spectator by  Stephen Bartholomeusz, in which Mr Bartholomeusz notes China will still grow at a decent clip, if not at the double-digit rates we have seen in the past:

The upside of China’s downturn

Still Mr Bartholomeusz notes slower Chinese growth will have implications for commodities demand and prices, and hence the profitability of our resource companies. This confirmation of the Chinese downturn by the OECD may mean that hopes of the Australian dollar reaching and significantly exceeding parity with the US dollar have been dashed.

It remains to be seen whether the Chinese downturn has major implications for the pace of our economic recovery.  The OECD CLI for Australia has remained roughly steady over the last few months, so our recovery should continue according to this indicator.

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