Momentum Signals Getting Weaker

The resource sector strategist's ongoing search for output growth momentum is not looking good. The latest leading indicators (for March) published by the OECD show most of the key economic regions either running below potential already or heading toward lower growth rates in the future. The chart shows the OECD leading economic indicators for the G7, China and India. Driven primarily by a loss of momentum in the USA and higher but stabilised growth in Europe, the G7 growth indicator has started to lose traction. China is already below trend and going lower. India has been growing below trend but heading higher. Overall, these indicators are consistent with raw material usage rates in 2015 being little different from those in 2014 and, as a consequence, are foreshadowing a slowing in the process of inventory or capacity utilisation adjustment in the resources industry. Such an inference about raw material use is consistent with the statistics covering the early months of 2015 published to date.