Global economic outlook is darkening

LONDON: Cyclical indicators point to slower and more uneven growth in the global economy for the rest of this year and into 2019, which means the rise in oil consumption is likely to moderate, especially for distillates like diesel.

Economic growth remains strong in the United States, but in much of the rest of the world clear signs of slackening momentum have emerged since the start of the year.

Strong and synchronised global growth in 2017 has given way to a weaker and more varied picture in 2018 and 2019, which is likely to be less supportive for oil consumption and prices:

The OECD’s composite leading indicator, which covers the advanced economies plus China, India, Russia, Brazil, Indonesia and South Africa, peaked in January but has since fallen and slipped below trend in May and June.

World trade volume growth also peaked in January at almost 5.7 percent year-on-year but had nearly halved to less than 3 percent by May, according to the Netherlands Bureau for Economic Policy Analysis.

The new export orders component of JPMorgan’s global purchasing managers’ index peaked in January, showing the fastest increase for seven years, but has since fallen every month and showed only marginal growth in July.

South Korea’s KOSPI-100 share index, a useful proxy for global trade growth given the country’s heavy export orientation, peaked in January but has since fallen and hit a 15-month low this week.

Air freight volumes are still growing but more slowly than in 2017, reflecting the completion of the restocking cycle and a slowdown in manufacturing orders, according to the International Air Transport Association.

These trade-oriented indicators are all correlated closely with one another and with the rate of expansion in the world economy – and they all tell a consistent story of slowing momentum outside the United States. The softening outlook for world trade has filtered through to the oil market, with Brent calendar spreads and spot prices peaking in April and May respectively. — Reuters