Global Leading Indicators, May 2025 - Stabilising?
The May 2025 edition of the global LEI chartbook can be found here. Additional details on the methodology are available here.
Global leading indicators were stabilizing midway through Q2, exposing the tension between macroeconomic forecasts—many of which still anticipate a significant slowdown in the second half of the year—and incoming data and market signals that suggest the trade wars, or at least the most deleterious effect of this threat, are a thing of the past. The White House will bluster, but is likely to avoid imposing growth- or market-damaging policies on a sustained basis. Underlying this assumption is the expectation that the U.S. administration will not jeopardize the privileges conferred by issuing the world’s dominant reserve currency and commanding the deepest and most liquid capital markets globally.
This environment leaves investors and forecasters balancing the risk of complacency against the evidence in front of them. The “macro” has been crying Wolf for so many times since the financial and EU sovereign debt crises that markets would be forgiven for finally letting go of the post-GFC PTSD and ignoring it. In April, markets were forced to confront the proverbial Four Horsemen of the (macro)Apocalypse: a sudden rupture in economic ties between the world’s two largest economies, global trade fragmentation and de-globalization, potential U.S. and global capital controls, and a meltdown in U.S. bond and equity markets. They did—and emerged on top, for now. The question now is; Do you feel lucky?
In the near term, attention turns to the impact of rising geopolitical risk as Israel and Iran square off. I’m inclined to believe these tensions will have limited impact on markets and broader macroeconomic trends in the West, except for increased energy market volatility. Ask me again if the U.S. is compelled to intervene with boots on the ground.
As of May, 10 out of 16 leading indicators in the sample were trending upward, signaling a robust upturn in global economic activity despite volatility in confidence indicators and lingering trade war effects. This matches the revised figure for April. It also extends a nearly 12-month stretch of broad-based expansion in global leading indicators, albeit with a somewhat weaker peak in activity compared to previous cycles. As noted last month, a further rise in the headline LEI diffusion index from these levels is possible, though historically rare. For context, global leading indicators also peaked in early 2006, rebounded into 2007, and then entered the prolonged downturn culminating in the global financial crisis. A similar but milder rebound occurred from late 2010 into 2011, by which point global growth had already slowed significantly, only to worsen amid the European debt crisis. Today’s upturn most closely resembles the intermediate rise of 2012–2013, which fizzled out in 2014, eventually leading to a downturn in late 2015 and early 2016. By 2017, meanwhile, an upturn was underway.
Coincident indicators, meanwhile, surged toward the end of Q1, driven by tariff front-running. Growth likely moderated in early Q2, but leading indicators still point to underlying resilience.
The rolling three-year Z-score of the global LEI—a typical lead on the headline index—declined slightly in May. This could be a red flag, but the drop was minor and could well be revised away in June. Based on this measure alone, portfolios highly exposed to global macro data can remain cautiously constructive, though momentum should now be monitored closely. Historically, conditions at this level have been about as good as it gets, with risks skewed to the downside.
Equity markets have rebounded in line with fading concerns over U.S. economic policy following April’s panic, and with the broader resilience in leading indicators. Judging by signs of stabilisation in leading indicators, equities have further to run, Middle Eastern tensions notwithstanding.
As of May, the first principal component (PC1) of the global LEIs was still trending downward. PC1 captures the common cyclical signal across countries and typically peaks during synchronized global downturns—illustrating the “everything is correlated in a crisis” phenomenon. Its continued weakness points to divergence across national leading indicators and, for now, hints at underlying resilience.
Country-level data reveal one notable area of additional weakness from last month: the U.S. LEI has now shifted into the “negative momentum” quadrant, joining Brazil and Indonesia. U.S. LEIs have declined month over month since February, and is now displaying negative momentum on a six-month basis. Brazil’s LEI, meanwhile, rose for a second straight month in May, suggesting a reversal in negative momentum consistent with looser monetary policy. Japan and Turkey remain mired in broad-based downturns, while Mexico’s LEI showed further improvement. Mexico stands out as the only country in the sample with strengthening positive momentum from a low base—typically the best setup for positive returns in cyclical asset. More broadly, most country-specific LEIs remain in the top-right quadrant, consistent with the strong overall message from the LEI diffusion index.