Is the global economy headed for a slowdown, or something worse? That’s the question investors have been pondering over the past few months.
Signs that economic performance is beginning to dwindle have hurt stock markets around the globe since last October – but there are still plenty who think these fears will ultimately prove misguided.
For now, there looks to be compelling evidence that the headwinds are real, or at least that economies are failing to meet expectations. The economic surprise index produced by Citigroup, which measures whether individual pieces of global economic data have underperformed or outperformed forecasts, now sits at its lowest level since 2013.
While the UK remains mired in internal and external Brexit negotiations, other parts of the world economy have issues of their own. There are two particular problem points, and both relate, at least in part, to the US-China trade war. After signs of a recovery in 2017-18, Europe is slowing again, and the powerhouse of continental growth, Germany, is among those stuttering this time. Data released last month showed the country narrowly avoided slipping into recession in the fourth quarter of 2018.
Many of Germany’s problems centre on manufacturing. Latest statistics show a surprise drop in industrial production in January, even as other indicators such as retail sales improved. A big driver of this slump is the trade war, which is affecting Asian demand for German exports.
Unsurprisingly, Asia itself has not escaped these pressures. Machine orders in Japan dropped 30 per cent year on year in February, while Korean exports fell 20 per cent year on year in March.
The focal point of all this is, of course, China. Having borne the brunt of the trade war fallout so far, the world’s second-largest economy is again slowing down – but perhaps for unrelated reasons.
The continual debates over whether the country will experience a hard or soft ‘landing’ after years of healthy growth have either concluded in favour of the latter stance or simply become more complicated, depending on your viewpoint.
Nonetheless, Beijing finds itself in a familiar position. Its dilemma is whether to prime the pumps again in order to boost growth, or whether to seek a more effective way of managing its switch from export-led growth to a consumer economy – a shift that has become more urgent in light of the protectionist policies emerging from the trade war.
In the past, rapid stimulus has always been the answer – other major nations, which remember the boost enjoyed by the global economy from the previous round of Chinese policy easing in 2016-17, may be hoping for more of the same this year. And there are signs that the taps are being turned on: Chinese premier Li Keqiang, perceived as being more cautious than President Xi Jinping when it comes to stimulus measures, said on March 15 that the country would have to “take strong measures to face the downwards pressure”, according to media reports.