Factory growth stuttered across the world in
July, heightening concerns about the global economic outlook as an
intensifying trade conflict between the United States and China sent
shudders through trading partners.
July, heightening concerns about the global economic outlook as an
intensifying trade conflict between the United States and China sent
shudders through trading partners.
Global economic activity remains solid, but it has already passed its
peak, according to economists polled by Reuters last month. They expect
protectionist policies on trade – which show no signs of abating – to
tap the brakes.
peak, according to economists polled by Reuters last month. They expect
protectionist policies on trade – which show no signs of abating – to
tap the brakes.
But slowing growth, wilting confidence, and trade war fears are not
likely to deter major central banks moving away from their ultra-loose
monetary policies put in place during the last financial crisis.
likely to deter major central banks moving away from their ultra-loose
monetary policies put in place during the last financial crisis.
“Growth overall is still there, and while there are risks, it’s
holding up. The big picture of a trade war and protectionism is that it
is a slow death – a death by a thousand paper cuts instead of anything
sudden and shocking,” said Richard Kelly, head of global strategy at TD
Securities.
holding up. The big picture of a trade war and protectionism is that it
is a slow death – a death by a thousand paper cuts instead of anything
sudden and shocking,” said Richard Kelly, head of global strategy at TD
Securities.
“Growth is still resilient, unemployment rates are low, inflation and
wages are rising – that’s the bigger picture and so they (central
banks) have to keep tightening in the face of that,” he said.
wages are rising – that’s the bigger picture and so they (central
banks) have to keep tightening in the face of that,” he said.
Last month, China and the United States imposed tit-for-tat tariffs
on $34 billion (£25.9 billion) of each other’s goods and another round
of tariffs on $16 billion is expected in August.
on $34 billion (£25.9 billion) of each other’s goods and another round
of tariffs on $16 billion is expected in August.
U.S. President Donald Trump’s administration, according to a source
familiar with its plans, is poised to propose 25 percent tariffs on a
further $200 billion of imports, up from an initial proposal of 10
percent. Its threat of tariffs on the entire $500 billion or so worth of
goods imported from China still stands.
familiar with its plans, is poised to propose 25 percent tariffs on a
further $200 billion of imports, up from an initial proposal of 10
percent. Its threat of tariffs on the entire $500 billion or so worth of
goods imported from China still stands.
Beijing has pledged equal retaliation, although it only imports about $130 billion of U.S. goods.
World stocks fell and the dollar strengthened on Wednesday on fears
of an imminent escalation in the U.S.-China tariff war. [MKTS/GLOB]
of an imminent escalation in the U.S.-China tariff war. [MKTS/GLOB]
Morgan Stanley analysts estimate an 81-basis-point impact on
global growth in a scenario of 25 percent tariff hikes across all
imports from China and Europe, with U.S. growth slowing by 1 percentage
point and China’s by 1.5 points.
global growth in a scenario of 25 percent tariff hikes across all
imports from China and Europe, with U.S. growth slowing by 1 percentage
point and China’s by 1.5 points.
Despite lethargic expansion rates, the European Central Bank last
week reaffirmed plans to end its 2.6 trillion-euro stimulus programme
this year and the Bank of England is widely expected to raise borrowing
costs on Thursday.
week reaffirmed plans to end its 2.6 trillion-euro stimulus programme
this year and the Bank of England is widely expected to raise borrowing
costs on Thursday.
On Tuesday, the Bank of Japan pledged to keep its massive stimulus in
place but made tweaks to reduce the adverse effects of its policies on
markets and commercial banks as inflation remains stubbornly out of
reach.
place but made tweaks to reduce the adverse effects of its policies on
markets and commercial banks as inflation remains stubbornly out of
reach.
China has been cutting bank reserve requirements to ease the pain of
its campaign to de-risk the financial system for smaller companies and
support growth. It is also planning more spending on infrastructure to
cushion the impact of trade tensions.
its campaign to de-risk the financial system for smaller companies and
support growth. It is also planning more spending on infrastructure to
cushion the impact of trade tensions.
Nevertheless, any fiscal and monetary measures would take time to filter through.
“China’s economy is on track to slow this quarter and next,” said
Julian Evans-Pritchard, senior China economist at Capital Economics in
Singapore.
Julian Evans-Pritchard, senior China economist at Capital Economics in
Singapore.
In the United States, growth is expected to cool slightly, but remain
strong enough for the Federal Reserve to stay on track for two rate
hikes this year, even if it is likely to hold rates steady this week
[ECILT/US].
strong enough for the Federal Reserve to stay on track for two rate
hikes this year, even if it is likely to hold rates steady this week
[ECILT/US].
SIGNS OF SLOWDOWN
European factory growth remained subdued in July, with scant sign of a
pick up anytime soon. Manufacturers across Asia provided evidence of a
loss of momentum across the region.
pick up anytime soon. Manufacturers across Asia provided evidence of a
loss of momentum across the region.
IHS Markit’s July final euro zone manufacturing Purchasing Managers’
Index only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged
from an initial reading and still comfortably above the 50 level that
separates growth from contraction. [EUR/PMIM]
Index only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged
from an initial reading and still comfortably above the 50 level that
separates growth from contraction. [EUR/PMIM]
Meanwhile, British factories lost momentum and manufacturers were
their most downbeat in nearly two years, likely raising fresh questions
about the actual need for a Bank of England interest rate hike on
Thursday [GB/PMIM].
their most downbeat in nearly two years, likely raising fresh questions
about the actual need for a Bank of England interest rate hike on
Thursday [GB/PMIM].
China’s Caixin/Markit Manufacturing PMI dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.
The headline number remained above the 50-point mark for the 14th
consecutive month, but a reading on new export orders showed a marked
contraction at 48.4.
consecutive month, but a reading on new export orders showed a marked
contraction at 48.4.
“The data breakdown indicates that an uncertain demand outlook amidst
the U.S.-China trade tariffs weighed on both output and sentiment,”
said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.
the U.S.-China trade tariffs weighed on both output and sentiment,”
said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.
Similar surveys revealed slowing activity from Australia to Japan.
PMIs also showed a contraction in Malaysia, a slowdown in Vietnam and
Taiwan, and only a modest pick-up in Indonesia. South Korea’s exports
showed slower-than-expected growth.
PMIs also showed a contraction in Malaysia, a slowdown in Vietnam and
Taiwan, and only a modest pick-up in Indonesia. South Korea’s exports
showed slower-than-expected growth.
Growth in India’s manufacturing industry also slowed last month,
according to a survey released showed just before the Reserve Bank of
India raised interest rates.
according to a survey released showed just before the Reserve Bank of
India raised interest rates.
The shipping container market, in which the vast majority of finished
manufacturing goods are imported and exported, shows a similar gloomy
picture: the Harpex container index has fallen by 10 percent from the
highest levels since 2011 that it hit in June.
manufacturing goods are imported and exported, shows a similar gloomy
picture: the Harpex container index has fallen by 10 percent from the
highest levels since 2011 that it hit in June.
