Consumer spending to hold steady this year

Global Consumer Index - Quarterly update

Highlights

  • Consumer spending growth will hold steady and grow by 1.8% over the coming months, in keeping with the post-crisis ‘new normal’ environment of weaker global economic performance.
 

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Welcome to the quarterly update of the global consumer index. The GCI is a forward-looking barometer that provides an early steer on consumer spending and growth prospects in the world’s 20 largest economies.

It combines key leading indicators of consumer spending into a single global index, including equity market indices, commodity prices, business and consumer confidence, industrial production and others.

In this video, we analyse recent trends in the GCI, and the factors driving its performance.

Growth has held steady from April to May, but momentum has eased back. This suggests that the acceleration that was signalled in February did not in fact result in a more prolonged upturn. Looking at the bigger picture, the GCI has circled within the lower left quadrant over the last 6 months – remaining below the long-term trend with the exception of February.

The overall picture is mixed, with trends in underlying indicators moving in opposite directions.

Consumer confidence has experienced a small weakening overall, particularly in crisis-hit Eurozone economies and global commodity prices have declined.

On the other hand, global money supply has increased, fuelled by monetary easing in key economies such as the Eurozone, Japan, South Korea and Australia.

Equity markets continue to rally on the back of this easing. Other strong performers include global industrial production, pointing to a more positive outlook ahead for global manufacturing.

The net impact of these trends combined remains positive. The GCI indicates that consumer spending growth will hold steady over the coming months – even if below long-term growth. This is in keeping with the post-crisis ‘New Normal’ environment of weaker global economic performance.

The overall message is that the global recovery will be slow and bumpy, but we are cautiously optimistic that the global economy and consumer spending will strengthen later this year as fears over a continued slowdown abate. Business can keep abreast of key developments in the global economy from the Global Economy Watch, which provides our latest view on the GCI and the global economic outlook.


Summary

Figure 1: Latest results from the Global Consumer Index

Figure 1: Latest results from the Global Consumer Index
  • Growth in the GCI is holding steady at 1.8% from April to May, but momentum measure has eased back, declining from 2.1% to 1.3% over the same period.
  • The acceleration the Index signalled in February did not result in a more prolonged upturn.
  • The GCI has circled within the lower left quadrant over the last six months – remaining below the long-term trend - with the exception of February.
  • Trends in underlying indicators are moving in opposite directions. Global commodity prices have declined, which points to weaker demand across the world economy. The International Monetary Fund’s (IMF’s) composite commodity index declined by 10% in the year to April, with much of the loss attributed to recent volatility in oil prices. Consumer confidence has also experienced a small weakening overall, particularly in crisis-hit Eurozone economies.
  • Liquidity has been buoyed by monetary easing in key regions such as the Eurozone, Japan, South Korea and Australia. Equity markets continue to rally on the back of this easing: the Standard and Poors (S&P) Global Index has maintained its gains since late last year, though remaining 11% below its pre-crisis peak. Global industrial production has also increased.
  • The net impact of these trends combined remains positive. Consumer spending growth will hold steady over the coming months in the ‘New Normal’ environment of weaker global economic performance. The global economy and consumer spending will strengthen later this year as fears over a continued slowdown abate.

Historic performance

Figure 2: Review of the GCI’s predictive power

Figure 2: Review of the GCI’s predictive power
  • We tested the GCI’s predictive power by comparing growth in the GCI against actual data on consumer spending. For the first quarter of 2013 headline GDP growth was used instead as data on consumer spending remain unavailable for most countries.
  • The GCI has signalled the directional trends in consumer spending well. This suggests that the underlying constituent indicators of the Index do provide a timely and forward-looking view on actual consumer spending, often one to three months in advance of consumer spending data releases.
  • The downward path in growth predicted by the GCI has largely been mirrored by the subsequent figures on consumer spending growth. Although in some cases it has deviated, such as the slight upturn predicted during the second and third quarters of 2011 that did not eventually materialise.
  • The GCI has under-estimated the level of growth over this period in all but one of the quarters. This underperformance is relatively small (averaging 0.5% year-on-year growth). This is due to a change in the relationship between the GCI’s constituent indicators and the economy, as illustrated by the seeming disconnect between surging stock markets and continued below trend growth.
 

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