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Conclusions:

  • Two key data points affirm our belief that global growth is, in fact, slowing.
  • With U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.
  • While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy. 

Somewhere beneath the sell-side storytelling about “rapid emerging market demand” the U.S.’s alleged “decoupling” lies the actual data; and as we’ve been forecasting since Bernanke’s last Policy to Inflate speech on JAN 25th, that data continues to point to a general trend of slowing economic growth globally.

Over the last few days, we’ve received two data points that  support our fact-based claim:

  1. Singapore Non-Oil Domestic Export growth slowed in MAR to -4.3% YoY vs. +30.4% YoY prior (Lunar New Year calendar shift effects in FEB); and
  2. Hong Kong’s Export growth slowed in MAR to -6.8% YoY vs. +14.0% YoY prior (also experienced seasonal distortions in FEB due to the Lunar New Year calendar shift).

Global Growth Update – What Growth? - 1

Given the relatively small size of each economy (0.3% and 0.4% of world GDP, respectively), it’s easy for a Global Growth Storyteller to dismiss these data points as trivial. We would strongly caution against doing so; Singapore and Hong Kong are ostensibly the world’s two most open economies as it relates to international trade flows. Consider the following metrics:

  • Exports account for roughly 33% of Asia’s GDP in aggregate;
  • The U.S. and E.U. combine for roughly a third of Asia’s export destinations;
  • 40-50% of intra-regional trade within Asia is basic and intermediate goods meant for re-export outside of the region, increasing the U.S. and E.U. share of Asian exports to somewhere closer to 2/3rds;
  • At 211% and 223% of GDP, respectively, Singapore and Hong Kong are far and away the most export-oriented countries in Asia – far more levered to global demand than other noteworthy exporters (China: 29.6%; South Korea: 52.4%; Japan: 15.2%; Thailand: 71.3%; and Taiwan: 58.9%);
  • The ratio of Singapore and Hong Kong’s share of world exports to their individual shares of world GDP are 7.1x and 7.5x, respectively – besting the next closest economy in Asia (Malaysia) on this metric by at least 3.7 turns; and
  • Singapore and Hong Kong are home to the world’s second and third-busiest container ports, handling 28,431,100 and 23,669,242 TEUs, respectively, per the latest yearly data from the American Association of Port Authorities.

Global Growth Update – What Growth? - 2

As such, it’s easy to see why growth in Hong Kong and Singaporean exports has been such an accurate barometer of global end demand over the past 15yrs or so. As the chart below shows, growth in their combined exports has a coincident-to-slightly-leading (i.e. 0-2 quarters) relationship to the growth rates of World, U.S., and Eurozone GDP. In 1Q12, growth our amalgamated Singapore/Hong Kong Exports metric slowed to +0.6% YoY from +4.3% YoY in 4Q11. Based on the trailing relationships – which have been known to oscillate – this is a negative leading indicator for World, U.S., and Eurozone GDP from anywhere between 1Q12 and 3Q12.

Global Growth Update – What Growth? - 3

When global growth slows, bad things happen – such as multiple compression and incremental deterioration of sovereign fiscal ratios. And with U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.

While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy.

Darius Dale

Senior Analyst