Deceleration of Global Exporting Activity Harms Global Growth

Diep Nguyen

10:45 16/10/2019

BizLIVE -

Unpredictable changes in the rules of global commerce are contributing to elevated policy uncertainty, slowing international trade, reduced business confidence, and weak investment.

Deceleration of Global Exporting Activity Harms Global Growth

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Global growth has been declining in 2019. Incoming data suggest activity has remained subdued in the third quarter of 2019, with a sustained deterioration in both business confidence and the global manufacturing PMI. Global industrial production slowed to 1.1 percent (y/y) in September, its slowest pace since December 2015. 
Consumer sentiment and services activity is also slowing. Inflation in advanced economies has fallen further below targets, contributing to major central banks implementing more accommodative monetary policy. 
Unpredictable changes in the rules of global commerce are contributing to elevated policy uncertainty, slowing international trade, reduced business confidence, and weak investment. Global uncertainty is also being exacerbated by the Brexit process.
Activity is slowing markedly in major economies. In the United States, growth decelerated to 2.0 percent in the second quarter of 2019 (q/q saar), amid moderating investment and exports. In light of muted inflation and rising risks from the external environment, the U.S. Federal Reserve lowered the target range for the federal funds rate by 25 basis points in both July and September. 
The Euro Area economy remains weak, with much of this weakness stemming from the German industrial sector. GDP growth in the Euro Area declined to 0.9 percent in the second quarter of 2019 (q/q saar), while the German economy contracted by 0.3 percent due to falling exports.
The U.K. economy contracted by 0.8 percent in the second quarter of 2019 (q/q saar), its worst performance since the 2007–09 global financial crisis amid broad-based weakness. The country is scheduled to exit the European Union on October 31, and currently has no agreement in place to avoid a potentially costly no-deal Brexit.
Recent indicators point to sluggish growth in emerging developing economies (EMDEs). EMDEs continue to experience broad-based weakness in industrial production and exports in the second half of the year. 
Services activity, which had until recently remained resilient, has also slowed despite supportive policies. All major EMDEs are moderating or slowly rebounding from a sharp deceleration in activity over the past few quarters. 
In China, growth decelerated to 6.2 percent (y/y) in the second quarter of 2019 because of weakening manufacturing activity and exports. In India, growth has softened, reflecting a broad-based slowdown in domestic demand amid tight credit conditions. Activity remains weak in a number of large commodity exporters, including Brazil, Russia, and South Africa.
Global trade continues to show broad-based weakness. Global trade in goods contracted 0.4 percent in June. Cyclical headwinds and sustained trade policy uncertainty continued to weigh on global trade growth in the third quarter of 2019. 
Weak global manufacturing activity and the steady deceleration of new export orders into July point to slowing momentum in Q3. The slowdown has been broad-based but EMDEs in East Asia and the Pacific, including China, have been particularly affected. 
The United States and China have recently announced tariffs on close to all remaining bilateral trade. Although negotiations between the two countries continue, prospects of a lasting trade agreement are dim. Recent developments are expected to weigh on activity in both economies and could also have severe repercussions for the global economy. 
Tensions have also escalated elsewhere, such as between Japan and the Republic of Korea. The ratification of MERCOSUR countries (Argentina, Brazil, Paraguay, and Uruguay) may also be delayed by policy disagreements.

DIEP NGUYEN

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