Strong October auto sales support the assessment here that the global economy is reaccelerating. Aggregate sales, seasonally adjusted, in the G7 and seven large emerging economies (the “E7”) rose to a record last month, reflecting another bumper outturn in the US and a sharp increase in China, following a cut in the sales tax on smaller-engined vehicles from 10% to 5% – see first chart.
Auto sales are a short leading indicator of the economic cycle. The increase since mid-year has coincided with a pick-up in retail sales growth and suggests that a recent recovery in industrial output momentum will extend into end-2015, at least – second chart. Global real narrow money trends, meanwhile, are giving a reassuring message for economic prospects in the first half of 2016 – see previous post.
China bears were energised by October trade numbers, showing a 6.9% annual decline in exports in US dollars, following a 3.7% September fall. Adjusting for the seasonal pattern, however, October exports were little changed from September and 6.9% above the first-half average. Chinese exporters continue to outperform their competitors; German September numbers, for example, show a 9.2% dollar-terms drop from a year before – third chart.
A near-record trade surplus coupled with reduced capital outflows, meanwhile, resulted in a small rise in Chinese foreign exchange reserves last month, following a large fall during the third quarter. The PBOC has been cutting banks’ reserve requirement ratios to offset a liquidity drain from intervention; with currency flows back in balance, the prospect of further reductions is receding.
