World growth grinds to halt as France goes into reverse
China slowdown, doubts over eurozone and US interest rates biting hit global economic figures
THE global economy appears to be at a tipping point as stagnation in Europe and a relentless slowdown in China threaten to bring last year’s recovery to a juddering halt.
Higher interest rates and the end of the fiscal spending spree in the US also mean the world’s biggest economy’s growth rate may have peaked. Growth in the eurozone has almost completely disappeared as businesses reported the weakest expansion in four years, with France even entering reverse gear this month as protests shook the economy.
The influential purchasing managers’ index (PMI) survey of businesses slid to 51.3 for the eurozone, 52.2 in Germany and 49.3 in France. Any score of below 50 indicates a contraction in activity. This suggests growth will barely recover from the disappointing 0.2pc expansion in GDP in the third quarter, and could worsen into 2019.
“The surveys point to quarterly GDP growth momentum slipping closer to 0.1pc in December alone,” said Chris Williamson, chief business economist at IHS Markit, which compiles the PMI. “Forward-looking indicators such as new orders and future expectations remaining subdued suggest that demand growth is stalling, adding to downside risks to the immediate outlook.”
Part of the problem is weaker Chinese demand, which resulted in the fourth consecutive month of declining new exports from Germany. China’s industrial production growth slowed last month and missed economists’ expectations with car sales down more than 10pc on the year. A slowdown in infrastructure spending as the government reins in elements of its stimulus package also knocked growth. China has agreed to suspend additional 25pc tariffs on imports of US cars for three months, suggesting the trade war may be cooling. This could ease some of the tensions in the economy and reduce the feared damage of the tariff spat with the US. In addition the Chinese authorities are expected to embark on a new programme of policies to shore up growth in an effort to stave off the slowdown.
Economist Iris Pang, at ING, anticipates an emphasis on “high quality growth, promoting advanced technology”, as well as “a further opening up of markets to foreign access – measures could include reducing tariff rates on more goods and easing market access for foreigners”. Looser monetary policy, a four trillion yuan (£460bn) stimulus – similar to that in the financial crisis – and reduced pollution controls could also play a part in the package.
Meanwhile, US manufacturing failed to grow in November and October’s expansion was revised down to just 0.1pc, from an initial estimate of 0.3pc.
“The renewed weakness in manufacturing output suggests that the sector is finally succumbing to the twin headwinds of weaker global demand and a stronger dollar,” said Michael Pearce at Capital Economics.
Economists anticipate a modest slowdown in global growth into next year. Axa Investment Management predicts a rise in GDP of 3.8pc this year, 3.6pc next year and 3.5pc in 2020. This includes the US’S growth rate halving from 2.9pc to 1.4pc in 2020, and the eurozone sliding from 1.9pc to 1.2pc over the same period. It anticipates Chinese GDP growth slipping from 6.6pc this year to 6.1pc in 2020.
But even this could be too rosy a picture as risks proliferate, the economic cycle ages and higher US interest rates start to bite globally. “We should start to contemplate … a hard landing in the US, the eurozone and China,” said Laurent Clavel at Axa.