World economy risks decelerating in sync
hong kong/frankfurt/washington — The world’s major economies that entered 2018 accelerating in sync risk entering 2019 decelerating in sync.
The shift is being led by China, where the economy’s weakest performance since 2009 is set to worsen unless a peace can be struck in the trade war with the US. Factory readings from Asia already show a fallout, with Taiwan, Thailand and Malaysia in contraction territory.
The euro area too is losing steam, expanding in the third quarter at half the pace of the prior three months as Italy and Germany stagnated. That comes just as inflation is picking up, setting up a complex 2019 for European Central Bank policy makers who have pledged to dial down monetary support.
The question is whether the US can resist the downdraft, providing ballast for the rest of the world. While a tightening labour market gives reason to hope it can, most economists forecast growth will ebb a bit in 2019 on the back of protectionism, higher interest rates and the fading support of tax cuts.
“The story is that we will probably re-synchronise,” said Joachim Fels, global economic adviser at Pacific Investment Management. “But this time on the downside.”
It’s a marked turnaround from April, when the International Monetary Fund declared the world was enjoying the most united upswing since 2010. Its mood changed in October when cut its global outlook for the first time in two years and said growth had plateaued.
There are other signs the peak has passed for the global economy. IHS Markit’s purchasing manager indexes for China and the euro area all retreated last month to drive the overall reading to an almost twoyear low, while the US gauge was little-changed. —