The odds of a global recession keep going down

• Ned Davis Research said economic indicators suggest the odds of a global downturn are diminishing.
• Growth signals are accelerating in 2024, and Red Sea supply chain snags have had minimal impact.

What recession?

Wall Street has broadly ramped up its soft-landing calls to start the year, and Ned Davis Research strategists seem to agree that a downturn is looking unlikely.

In a note published Tuesday, they highlighted that economic indicators across manufacturing, supply chains, and equities suggest the odds of a global recession have come down.

"The global economic lull we saw in the second half of 2023 appears to be abating as we start the new year," chief economist Alejandra Grindal and senior analyst Patrick Ayers wrote in the report.

Economic momentum appears to be accelerating, in their view, as measured by the global composite PMI, a gauge of services and manufacturing. The metric climbed for the third straight month in January to hit 51.8, its highest in eight months.

On a historical basis, it's still below the long-term average of 53.2, but the global composite PMI has a recession threshold of 47.8. The current positive trend implies near-term concerns can be shrugged off.

At the same time, the report's leading indicators also suggest constructive growth ahead. The new orders index, for example, showed its strongest expansion in seven months, NDR noted, and the future output index hit its highest mark since June.

"Manufacturing, which has been an economic laggard for some time, pulled out of contraction territory for the first time in 17 months," strategists said. "Meanwhile, services, the largest chunk of the economy, remains strong. Breadth in both sectors picked up, indicating that the expansion is broadening."

Global services PMI, which notched its strongest growth since July 2023 as it climbed 0.7 points to 52.3 in January, is still below its long-term average of 53.6, but it's moving in the right direction.

Plus, new business jumped for the third month in a row, and export orders saw their first expansion in five months.

"The percentage of economies with expanding services sectors jumped ten points to 77%, the highest share in six months," the strategists maintained. "This puts our breadth measure closer to pre-pandemic levels, when global expansions typically saw services breadth at 85% or higher."

Across all countries, emerging markets outside of China have seen the strongest growth, with India and the Middle East leading the way. The US, Japan, UK, and China are seeing "moderately constructive" growth, the firm said, while Canada and the eurozone are seeing weaker performance.

The US in particular saw its S&P Global composite PMI hit 52.0 in January, a six-month high. US manufacturing grew for the first time in nine months, and by its widest margin in more than a year, NDR said.

To be sure, supply chain snags have picked up amid the Red Sea crisis and the disruptions to global shipping, though prices have remained resilient so far, in NDR's view.

To that point, Goldman Sachs analysts recently forecasted that any spikes in freight costs won't spur a fresh rise in inflation and that the situation is entirely different from the supply-chain disruptions seen during the pandemic.