Global factory growth slows as China-US trade war bites
PROTECTIONIST POLICIES, WHICH SHOW NO SIGNS OF ABATING, SEEN SLOWING MOMENTUM
Factory growth stuttered across the world in July, heightening concerns about the global economic outlook as an intensifying trade conflict between the United States and China sent shudders through trading partners.
Global economic activity remains solid, but it has already passed its peak, according to economists polled by Reuters last month. They expect protectionist policies on trade — which show no signs of abating — to tap the brakes.
But slowing growth, wilting confidence, and trade war fears are not likely to deter major central banks moving away from their ultra-loose monetary policies put in place during the last financial crisis.
“Growth overall is still there, and while there are risks, it’s holding up. The big picture of a trade war and protectionism is that it is a slow death — a death by a thousand paper cuts instead of anything sudden and shocking,” said Richard Kelly, head of global strategy at TD Securities.
Further tariffs
Last month, China and the United States imposed titfor-tat tariffs on $34 billion (Dh124.88 billion) of each other’s goods and another round of tariffs on $16 billion is expected this month.
US President Donald Trump’s administration, according to a source familiar with its plans, is poised to propose 25 per cent tariffs on a further $200 billion of imports, up from an initial proposal of 10 per cent. Its threat of tariffs on the entire $500 billion or so worth of goods imported from China still stands.
Morgan Stanley analysts estimate an 81-basis-point impact on global growth in a scenario of 25 per cent tariff hikes across all imports from China and Europe, with US growth slowing by 1 percentage point and China’s by 1.5 points.
Despite lethargic expansion rates, the European Central Bank (ECB) last week reaffirmed plans to end its €2.6 trillion stimulus programme this year and the Bank of England (BoE) is widely expected to raise borrowing costs today.
On Tuesday, the Bank of Japan (BoJ) pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.
European factory growth remained subdued in July, with scant sign of a pick up anytime soon. Manufacturers across Asia provided evidence of a loss of momentum across the region.
IHS Markit’s July final Eurozone manufacturing Purchasing Managers’ Index only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged from an initial reading and still comfortably above the 50 level that separates growth from contraction.
Meanwhile, British factories lost momentum and manufacturers were their most downbeat in nearly two years, likely raising fresh questions about the actual need for a BoE interest rate hike today.
China’s Caixin/Markit Manufacturing PMI dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.
The headline number remained above the 50-point mark for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.
“The data breakdown indicates that an uncertain demand outlook amid the US-China trade tariffs weighed on both output and sentiment,” said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.