The Hindu Business Line : OECD indicators signal intensified slowdown

Mumbai, July 11 Latest data (composite leading indicators) from the OECD secretariat signal intensified slowdown of economic activity among OECD members, mainly industrialised economies.

The composite leading indicators for the US, Canada, Japan and Euro area all showed varying levels of decline in May 2008, as also decline compared with May 2007. However, data for major OECD non-members (the so-called BRIC economies) tentatively point to expansion in China, but a downturn in Brazil and India, and continued expansion in Russia. The indicator for China was up 2.0 points in May 2008 and stood 1.9 points higher than a year ago. For Russia, it increased by 0.9 point in April and its level was 2.9 points higher than a year ago.

For Brazil, it increased by 0.1 point in May 2008, but was 1.6 point lower than a year ago. For India, it fell by 0.7 point in April 2008 (the latest available) and was 4.1 points lower than a year ago.

Downturn in India

India’s composite leading indicator has been decreasing month-on-month since January this year. The country is clearly on a downturn — as the figure has been decreasing but is still above 100, the long-term average, according to OECD definition. From 102.8 points in January, it declined to 101.8 points the following month and further down to 101.2 in March. For April it is 100.4 points. If it slips below 100, it would be called a slowdown.

The latest IIP figure (3 per cent for May) also suggests a downturn which can precipitate into a slowdown. The OECD’s composite leading indicator is designed to provide early signals of turning points between upswings and downswings in the growth cycle of economic activity. The indicator provides qualitative information on short-term economic movements rather than quantitative measures. There is strong positive correlation between global economic growth and consumption of fuel and metals.

The slowdown in industrialised countries as evidenced by the latest data has the potential to reduce demand for base metals and industrial metals. High energy prices and inflation too would contribute to slowing demand growth, if not demand compression. The latest indicators are sure to be taken note of by commodity market participants. It is tough say whether speculators holding long positions will liquidate soon and exit, based on the latest lead indicators.

Oil, base metals

The market fundamentals for oil and many base metals are tight. Both crude and metal markets continue to be subject to supply uncertainties. China seems to be performing exceptionally well in the otherwise slowing global economic activity.

To what extent the Asian giant can help offset the demand loss in OECD countries remains to be seen.

More Stories on : Economy | Commodities

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page