Major economies slowing in sync

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 weakest performance since 2009 could worsen unless a truce can be struck in the trade war with the US. Factory readings from Asia already show fallout, with Taiwan, Thailand and Malaysia slipping into contraction territory.

The euro zone too is losing momentum, 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 challenging 2019 for European Central Bank policymakers.

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.

It’s a marked turnaround from April, when the IMF declared the world was enjoying the most united upswing since 2010. Its mood changed in October when it cut its global outlook and said growth had plateaued.

There are other signs the peak has passed. The IHS Markit purchasing managers’ indices for China and the euro area all retreated last month to drive the overall reading to an almost two-year low, while the US gauge was little changed.

“The latest data strongly supports the view that the best days in the post-2008 financial crisis growth cycle have been seen,” said Alan Ruskin, global co-head of foreign exchange research at Deutsche Bank.

A global reversal could add further jitters to financial markets and eventually pressure central banks such as the Federal Reserve to slow their exit from monetary stimulus, though so far there is scant sign the Fed will alter the course it has charted.

Circuit breakers could include a breakthrough in the trade dispute. Other tonics could include a slower-than-expected pace of Fed rate increases, which would also ease pressure on borrowers and emerging markets. So too would a soothing of political tensions over Brexit or Italy’s huge debt pile.

The growth wobbles have already hit markets, and the moves have been significant enough that they could have economic consequences. October marked one of the worst months for the bull market in US stocks, contributing to sell-offs around the world that erased $8 trillion.

A further 20% fall in global equity markets could lower average advanced-economy GDP in 2019 and 2020, according to Oxford Economics. The US is already forecast to slow, with growth tipped to cool to 2.7% in the fourth quarter, versus 3.5% in the third and 4.2% in the second.