Megan Green writes in the Financial Times that last year almost all economists spoke of synchronized global growth. Synchrosism, however, was not with the US economy where the recorded growth was far superior to other countries, thanks to fiscal stimuli.
Megan Green expects global synchronization for 2019, but not in a good way. The United States saw a slowdown in growth from the exciting days recorded in early 2018. It hit 4,2% in the second quarter and 3,5% in the third. But the "nowcast" from the Atlanta Federal Reserve predicts 3% growth for the fourth quarter, a slowdown caused by uncertainty over trade policy and, in short, poor fiscal stimulus.
The US may take some steps in the trade dispute with China, but the key issues: intellectual property rights, forced technology transfers and technology subsidies have not been addressed. The eurozone, meanwhile, reached peak growth for the current business cycle in the second half of 2017. Growth has slowed since then, from 2,5% in the third quarter of 2017 to 1,7% in the same quarter of this year. This has recently been driven by a sharp slowdown in Germany, caused, in part, by problems in the automotive sector and Italy's gross domestic product. Germany is expected to go through 2019 unscathed. The biggest problems, on the other hand, are present in France (yellow vests) and Italy (deficit / GDP overrun and European rules). The European Central Bank has just concluded the “Quantitative Easing” which has buffered the effects of Brexit in recent years.
Growth in China also started to slow towards the end of 2017 and is likely to continue into next year, despite a series of fiscal and monetary stimulus measures. The biggest immediate threat to the Chinese economy is an escalation of the trade dispute, which could lead to a 25% tariff on all Chinese exports to the United States. This would have a material impact on the Chinese economy, not to mention global trade. A worsening of the situation could cause the People's Bank of China to allow the local currency to depreciate to offset the impact of tariffs. This would push the US dollar higher, putting a significant squeeze on emerging market economies that borrow and bill imports in dollars. However, a synchronized global slowdown is not entirely unexpected.
In the absence of fiscal or monetary stimulus, an increase in productivity growth or an increase in the supply of labor, we should always expect the economies of countries to recede globally. Most of the major central banks also appear to be alarmed by the global slowdown. Last week, Mario Draghi, president of the ECB, said that the balance of risks in Europe was "the downside". On the same day, PBoC Governor Yi Gang promised that China's monetary policy will remain "supportive". The Bank of Japan continues to pump money into the Japanese economy. And most importantly, Jay Powell, chairman of the US Federal Reserve, signaled to markets last month that the central bank was adopting a more data-dependent and therefore likely dovish interest rate path for 2019. global economy is weakening central banks are signaling that they are, however, aware of the risks for the next year and that they are considering the measures to be implemented.