Global Recovery Strengthening

The OECD’s latest assessment sees a possible peak in U.S. unemployment and a rebound in business confidence for both the U.S. and Europe.

Of the G7 countries, Canada is forecasted to have the strongest rebound in terms of GDP (see table) growing by more than 6 percent during the first quarter of 2010, but all seven are expected to see growth through the first half of the year.

The assessment also pointed out that the rebound in OECD countries has largely depended on strong activity growth in Brazil, India, China and other emerging markets. “Trade linkages” between emerging markets and OECD countries has spurred on the global recovery because strength in one market is shared with many.

These linkages are evident in the swift rise in industrial production (IP). As the chart shows, each of the BRICs has experienced a significant bounce off lows in IP.

The OECD estimates the world trade volume growth will surpass 10 percent for both the first and second quarters of 2010. In addition, export orders will return to normalized levels during the second quarter for the first time since mid-2008.

The research group ISI recently reported that U.S. manufacturing PMI for exports surged to 61.5 percent in March. Meanwhile, global manufacturing PMI for exports reached a record level of 58.4 percent. Signs of the recovery also showed up in ISI’s company surveys, which showed strengthening in retailers, bank loans, engineering & construction companies and even auto dealers.

The OECD also highlighted how emerging markets bond spreads have narrowed. Since peaking above 800 basis points toward the end of 2008, bond spreads for both Asia and Latin America have dropped to roughly 200 basis points.

While these assessments are optimistic, the OECD offers a word of caution on the strength of the recovery. The “frail labor market” and removal of stimulus efforts pose a threat. They call for an “ambitious, clearly communicated” strategy to unwind the stimulus in order to not derail the recovery.

This note is especially important when considering the imbalance between emerging and developed economies. Many developed countries, like the United States, have accumulated large deficits fighting through the crisis and the effects of repairing these sheets will likely be felt in all markets.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The OECD is the Organization for Economic Cooperation and Development.

About Frank Holmes 264 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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