JAKARTA (TheInsiderStories) – Data from the world’s largest economy shows that there was a recent slump in growth in March, where JPMorgan’s Global Composite Output Index rose 0.2 points to a four-month high of 52.8. This indicates that a rebound in growth seems unlikely. However, more accommodative policies in key economies are likely to help stabilize growth, according to IHS Markit in its official statement.
It said, the United States economy slowed because the stimulus was exhausted, but it was predicted to remain stable. At the same time, US-China negotiations are still continuing, the future of automotive and aircraft tariffs remains unclear, and the US-Mexico-Canada Agreement has not been ratified.
“One disturbing manifestation of this high level of uncertainty is the virtual cessation of global capital expenditure,” said IHS.
Based on its calculations, IHS estimates first quarter US GDP growth of 2.0 percent. However, the accumulation rate of inventory is very high on an ongoing basis, which means that inventory will become an obstacle in the remainder of 2019. For 2019, US real GDP growth is 2.3 percent, followed by 2.1 percent growth next year.
“After 2020, we project a period of below-trend growth that balances the risks between continued trend-like growth and a recession, and that puts the unemployment rate on a gradually rising path. Downside risks to the forecast remain elevated – especially related to policy mistakes, including trade,” said IHS senior analyst.
Meanwhile, IHS predicts European economic growth is still weak in the global economy. The main indicators for the Eurozone industrial sector remain weak and consistent with the recession. The most troubling is the industrial downturn in Germany. Balancing factors such as mild inflation, monetary easing, and looser fiscal policy provide some support.
Some risks have not yet been realized (Brexit shocks, trade wars, financial market volatility, and the end of Iran’s oil sanctions).
Real GDP growth is projected to slow from 1.8 percent last year to 1.1 percent in 2019 and 1.0 percent in 2020.
“With continued Brexit uncertainty, the UK economy is projected to grow only 0.8 percent in 2019 and 0.9 percent by 2020,” said HIS.
On the other hand, third-strongest economy of Asia, Japan, is still experiencing contraction, especially Japan, which has a high risk of economic contraction earlier this year, even before the October sales tax increase. IHS has revised down its estimate of Japan’s real GDP growth for 2019 from 0.7 percent to 0.6 percent.
Private machinery orders only recovered partially in February after three consecutive monthly declines, signaling a decline in private capital spending in the first quarter.
Real household expenditure data also showed consumer spending growth softened in the first quarter. The jagged pattern of real GDP growth seen in 2018 will continue throughout 2019, as consumer spending rises before the October sales tax increase, and then falls afterwards.
While, China actually experienced a stimulus that was induced by economic stabilization. The growth momentum is evident from China’s real GDP which increased 6.4 percent year-on-year (y-o-y) in the first quarter.
Industrial production rose 8.5 percent y-o-y in March, a significant increase from 5.3 percent growth in the first two months of 2019.
Nevertheless, some of the latest data show ongoing weaknesses. Merchandise imports fell 7.6 percent in March (y-o-y) due to weak domestic demand, although exports rose 14.2 percent.
More alarming, automotive sales declined in March for the ninth consecutive month. Fiscal and monetary stimulus measures will limit China’s slowdown, but China is experiencing a gradual slowdown trend.
On other large emerging markets, the pressure from a long list of adverse developments has eased. This was triggered by several important factors.
First, the US begins a series of aggressive trade actions, which are detrimental to the volume of global trade. Second, the Federal Reserve and other major central banks raise interest rates, which put upward pressure on emerging market interest rates and downward pressure on their exchange rates.
Furthermore, China suffered through an industrial recession, which reduced imports of raw materials from developing countries. Finally, commodity prices fall almost throughout the year.
However, there has been some progress, albeit slowly, in US-China trade negotiations. While, the Fed and other central banks have embraced the rate hike, which has allowed several emerging market central banks to stop raising interest rates and others to cut.
The suffering of China’s industrial sector also seems to subside, and commodity prices have been flat. But, risks on all lines remain high and growth may remain weak for the next few years.
Written by Daniel Deha, Email: firstname.lastname@example.org