2019-02-26

Global Economics Update







REAL SECTOR | Global economic growth moderates in Q4 as uncertainty heightens Global economic growth continued to cool in the fourth quarter of 2018, with aggregated growth hitting the lowest mark in two years. The global economy expanded 3.0% in the fourth quarter over the same period in the previous year according to an estimate produced by FocusEconomics. The print was a notch below the 3.1% expansion forecast in the previous month and Q3’s 3.1% increase. Looking at the economic performance of G7 economies, Q4’s slowdown was mostly led by a sharp deceleration in the Euroarea, which expanded at the weakest pace in over four years in annual terms. Although a detailed GDP breakdown is still missing for the common-bloc, available data suggests that a downturn in the industrial sector and deteriorating economic confidence likely hit domestic demand, while a cooling global economy could have led to a deterioration in the external sector. In Japan, economic growth rebounded in seasonally-adjusted annualized terms (SAAR) in Q4 as the impact of a series of natural disasters in Q3 dissipated. Low business confidence and Brexit uncertainty kept growth subdued in the United Kingdom. Regarding the United States, GDP figures for Q4 have not yet been disclosed due to the government shutdown in December 2018 and January 2019. However, available data for the quarter suggests that growth moderated in SAAR terms in Q4 on the back of less robust private consumption. Data for the first quarter paints a rather gloomy picture for the global economy, with moderating demand impacting industrial activities. Labor markets, however, seem relatively robust worldwide, which should buffer domestic demand. On the political front, President Donald Trump stated on 24 February that the U.S. will extend the 1 March tariff hike deadline on USD 200 billion of Chinese imports, while officials from both countries cited substantial progress in bilateral talks. That said, President Trump did not propose a new deadline and there is widespread skepticism about the depth and scope of the progress, particularly how to ensure compliance with the deal. In the eyes of U.S. government officials, China’s industrial subsidies and alleged espionage, the large trade surplus that the Asian giant holds against the U.S. and intellectual property rights violations in China are the key sticking points. Global outlook stable 2.4 2.8 3.2 3.6 Q1 16 Q1 17 Q1 18 Q1 19 Q1 20 2.8 3.0 3.2 3.4 Oct Jan Apr Jul Oct Jan 2019 2020 World Economic Growth Change in GDP forecasts Note: GDP, real annual variation in %, Q1 2016 - Q4 2020. Note: GDP, evolution of 2019 and 2020 forecasts during the last 18 months. FOCUSECONOMICS Summary FocusEconomics Consensus Forecast | 3 March 2019 While the China-U.S. trade spat appears to be on track for a successful resolution in the near future, the winds of protectionism are gathering strength. On 17 February, U.S. Commerce Secretary Wilbur Ross recommended imposing tariffs on global imports of cars and auto parts; President Trump now has 90 days to decide whether to do so, which could amount to tariffs of 25%. Meanwhile, on 26 February, Theresa May pledged in parliament to allow MPs to vote on whether to delay departure if no deal has been reached by mid-March. MPs will debate the next steps on 27 February; crucially, one amendment likely to be debated could also force the government to request an extension of Article 50.


OUTLOOK | Global economic outlook takes a respite this month The economic outlook was stable this month following last month’s downgrade. While the global economy has entered a soft patch this year, robust labor markets worldwide and supportive fiscal policies are expected to shore up economic growth. Moreover, the U.S. Federal Reserve’s decision to pause its tightening cycle will allow central banks to adopt more accommodative monetary policies. Nevertheless, risks to the global economic outlook are clearly skewed to the downside. Despite President Trump’s plan to delay additional tariffs on Chinese goods, trade tensions between China and the United States remain elevated. Furthermore, the U.S. administration has already threatened its trade partners that new tariffs, this time on cars, are on the table. Meanwhile, China’s economy continues to slow, adding downward pressure on global demand, while uncertainty surrounding Brexit shows no sign of abating. FocusEconomics Consensus Forecast panelists expect the global economy to expand 3.0% in 2019, which is unchanged from last month’s estimate and below the 3.2% increase projected for 2018. The panel sees global economic growth inching down to 2.9% in 2020. This month’s stable growth prospects for the global economy reflects unchanged growth prospects for the United Kingdom and the United States. Conversely, our analysts downgraded their view for Canada, the Eurozone and Japan. Among developing economies, growth prospects in Asia ex-Japan remained stable on hopes that China and the U.S. will be able to clinch a trade deal in the coming months and that policy stimulus will avoid an economic downturn in China. In Latin America, while economic dynamics are expected to improve in 2019, the slow pace of economic reforms in Brazil and widespread political risks are dragging on overall regional growth. Economic growth in Eastern Europe will slow due to headwinds in Turkey, subdued economic activity in Russia and moderating dynamics in the European Union—the region’s main trading partner. Despite bolder fiscal support in the Middle East and North Africa, economic growth will moderate in the region owing to OPEC+ oil production cuts. The economic recovery in Sub-Saharan Africa will continue Change in GDP Growth Forecasts 2019 2020 -0.15 -0.10 -0.05 0.00 0.05 Euro area Japan G7 United Kingdom World United States BRIC China Brazil India -0.04 -0.02 0.00 0.02 Euro area BRIC Brazil G7 United States China Japan World United Kingdom India Note: Change between February 2019 and March 2019 in percentage points. . . Source: FocusEconomics