Anyone who voted to stay in the EU should turn away now. There is disturbing news from far-off continents that could prove upsetting. The news is that Britain’s negotiations to leave the EU will take place against the backdrop of strong global growth. Such is the magnitude of this turnaround from the wobbles of 2015 that it could save the Tory administration from the inevitable cuts or extra borrowing that would follow a stagnating economy.
We are not talking about a Trump-inspired dash for growth, although the US president is part of the story. The underpinnings for a year of high employment and solid wage growth across the globe are survey figures showing the largest improvement in worldwide manufacturing business conditions for more than five-and-a-half years.
Built on the expansion of manufacturing output from Europe to China and the US to Japan are February figures showing global trade grew at the fastest rate for just under six years.
An index of global manufacturing health – the
JP Morgan Global Manufacturing purchasing managers index (PMI) – has risen to its highest since May 2011.
The icing on the cake is a measure of optimism about business conditions that is continuing to show company bosses are upbeat about the year ahead.
Markit’s chief economist Chris Williamson said the latest reading continued an improving trend that had been evident since the JP Morgan survey signalled stagnation this time last year.
“The February index reading is broadly indicative of global manufacturing output growing at a robust annual rate of 4-5%,” he said.
Employers are paying higher wages and “commonly reported the need to expand capacity in line with rising demand and brightened prospects”.
It doesn’t stop there. The stock markets in all major financial centres are tearing through historic ceilings and most investors have a benign outlook for at least the next two years. The world is awash with cash and consumers want to spend it.
It means that much like the European Exchange Rate Mechanism crisis of 1992, when Britain crashed out of the precursor to the euro, the blow was cushioned by a buoyant global economy.
The doomsayers may yet have their day. Theresa May could lead Britain to a position where it leaves the EU, the single market and the customs union with terrible consequences for trade, business investment and GDP growth.
There is the prospect of destabilising political rows between the west and Russia, terrorism is still a lurking danger and China remains wild card that could drag the global economy under.
Greece could yet go bust, there have been dire warnings about the state of Italian banks and the elections in the Netherlands, France and Germany could change the complexion of Europe for the worse.
Some leading leftwing economists in the US predict the Trump surge will evaporate as soon as the autumn. Former treasury secretary Larry Summers and Nobel prizewinner Paul Krugman both agree on a return to the “new normal” or “secular stagnation” of low growth and low wages within months, not years.
Another crash could be coming if Trump does loosen banking regulations and allow credit to surge. But for the moment, it looks good for the US and the global economy.
For instance, most investors think the return to robust global growth has little to do with Trump. It is more about believing even the scariest political flash points can be contained.
They are betting that far-right groups in Europe will lose out to centre-right groupings and that the financial problems in Greece are ring-fenced; that the Chinese communist party will retain its grip on the economy to keep things moving forward; and that Russia will consider it too risky to encroach further into Ukraine.
They also take a generous view of Donald Trump’s plans for tax cuts and infrastructure spending while dismissing his tub-thumping demands for a wall with Mexico and a trade war with almost anyone who wants to have a fight over tariffs.
Across the road from the White House, the US central bank, the
Federal Reserve, is firmly in the optimists’ camp. Bill Dudley, a member of its interest rate-setting committee and a confidant of boss Janet Yellen, said in December that a Trump presidency created “considerable” uncertainty. Last week, his frown had turned into a smile and he said the prospect of a rate rise was getting closer. On Friday, Yellen hinted it could be little more than a week away.
A colleague of Dudley’s, Federal Reserve Governor Jerome Powell, said not only was the US looking “solid”, but global risks had diminished. “So we see a slightly brighter picture abroad and I think that will help us,” he said.
Britain’s economy is slowing and it may slow further. But slowing is all it will do. There will be no recession. The global economy will see to that.
