Global slowdown begins to look more troublesome
activity growth in the world economy has slowed from a peak of five percent a year ago to only three percent now, about 0.7 percent below trend. Much of this decline has occurred in the last couple of months.
Growth has declined almost everywhere. China has slowed from 7.4 percent a year ago to 5.3 percent now, the lowest growth rate since the serious will be far less supportive next year than in 2018. The positive fiscal thrust will drop from a peak of 0.8 percent this year to zero at the end of next year, assuming no further measures to reduce taxes or raise infrastructure spending after the midterm elections.
Furthermore, financial conditions will be much less accommodative, in response to continued
The eurozone and UK:
The outlook here is quite hard to judge. Growth has already slowed sharply in 2018, reflecting adverse weather and a waning of monetary policy support, compared to last year. There were tentative signs of improvement around midyear, but Germany has been severely knocked off course by the change in emissions regulation in the car shock next spring.
This is where the downside risks seem most severe. The Chinese nowcast dropped sharply in October, following many months when it was fairly solid in the face of deteriorating news commentary.
This weakening has coincided with an increase in trade threats from Washington, and the politburo has now admitted that the economy is being affected by ‘external forces’. They now seem ready to act more aggressively to boost private sector activity, following the moderate easing in monetary policy and the decline in the exchange rate around midyear.
The latest policy statements place less emphasis on deleveraging and more on boosting private infrastructure spending than earlier announcements, and this should show up in monetary and other activity data before year end.
However, the outlook for 2019 also depends on whether presidents Trump and Xi can move towards detente on trade policy, as hinted by their latest telephone discussions ahead of the G20 Summit this month.
A bad outcome on trade could knock more than a percentage point off Chinese growth next year, making it much harder for domestic policy to fill the gap.
A significant slowdown in the US looks likely, but this should be offset by a rebound in the Eurozone, China and Japan after temporary hits to growth dissipate, and Chinese policy easing takes effect. Growth may be around trend in 2019, slightly higher than the latest nowcast.
The risk of an outright recession remains moderate, at least in the absence of self-feeding shocks in the financial markets.
China: Global economy: