Markets spent April worrying about the health and strength of the world economic recovery.
Doubters in the US decided Mr Trump could not even get a healthcare reform through Congress, let alone an infrastructure package and big tax cuts. The feeling developed that there would be less reflation from the US than advertised.
Doubters in Europe decided the rise in prices from oil, commodities and Chinese imports would squeeze consumers and cut the growth rate as a result. There was also plenty of political risk in the Eurozone.
Doubters of China pointed to the government’s wish to rein in speculative excesses, to reduce property prices in the hotspot cities, and cut some fringe financial activity. Could this lead on to slower growth?
The story was reinforced by weaker figures coming in for first quarter growth. The US growth rate fell. Eurozone retail sales growth more than halved between December and March.
It looks as if we will now shrug much of this off. The underlying major economies are continuing to grow. Recent opinion surveys leading to the publication of indices or purchasing managers’ indexes (PMIs) show more confidence and a brighter outlook. The PMIs in Europe and the US point to further expansion, and imply second quarter acceleration of output. Whilst European retail sales slowed in the first quarter of this year, they were still up by 2.3 per cent over the last twelve months.
One of the main political risks, the French Presidential election, receded. It produced the result the majority in the markets wanted, not that it ever really looked in doubt.
Inflation has picked up a bit. Higher oil and commodity prices were the main reason. These prices seem to have levelled off or have fallen somewhat in recent weeks. This reduces the inflationary pressure. As sales volumes expand generally, there should be more investment by companies in increasing capacity and in improving their efficiency. There are still downward pressures on prices in both world goods markets and in the retail sector.
The advent of the internet as a shopping aid has allowed people to compare prices more easily. Online shopping has slashed costs for the pure online retailer compared to the shops on the High Street, also pushing prices down. Overcapacity in basic industries like steel and coal keeps prices under some control, and gives China the difficult task of deciding when to close mines and steel mills to try to get capacity more into line with demand. It is true a feature of rising inflation in recent months has been some Chinese success in putting up export prices as the major supplier of many manufactured goods to the world. There are also limits to how far this can go.
It looks to us as if the world economy can grow reasonably well this year. We expect many of the doubts and wobbles of the last few weeks to be put behind it. Growing together helps boost investment and output more, with enhanced opportunities for international trade. The Republicans did manage to pass a Healthcare Bill through the House of Representatives, though they still need to persuade the Senate. We will watch Chinese progress with tackling excesses in their markets. It is unlikely they will want to impede Chinese growth running around the 6.5per cent official target.