Global Economy To Grow At The Slowest Pace In A Decade

Global growth is estimated to grow at the slowest pace, 3.0 percent in a decade according to a report compiled by Genghis Capital.

The latest Global Composite Purchasing Managers Index (PMI) for September touched a 39-month low reading of 51.2 (similar to May and June this year). Broadly, growth headwind as per the indicator is emerging from weak business investment.

Manufacturing and global trade have also been flagged as weak points in the overall global economy.

“We expect a mini trade deal between the US and China to be struck in 4Q19. As we argued in our previous piece, an outright roll-back of the protectionist tariffs would have been a long call to materialize,” said Genghis Capital in their report.

The ongoing trade uncertainty shock has led to some convergence in their individual growth prospects that should warrant consensus building. China’s slowest quarterly growth in 27 years of 6.0 percent signals the toil the mutating trade war has on the country.

President Donald Trump would want to build leverage as he seeks second-term re-election. So far, there’s some progress being made towards a trade deal. The news flow indicates that China is committed to increase agricultural imports and ease non-tariff barriers to US products; to protect intellectual property and open up its financial sector; and lastly, to increase foreign exchange transparency.

The US committed to suspending the increased tariffs which were scheduled for mid-October. However, it is unclear as to whether the scheduled tariff increase for mid-December will still proceed on.

Nonetheless, there remains a window of opportunity to hammer out a deal this quarter. The Brexit journey has had its own fair share of surprises.

The ball is now squarely on the European Union on whether it will grant Britain an extension beyond the October 31st deadline.

Domestically, Prime Minister Boris Johnson is facing hurdles pushing through his Brexit deal with the House of Commons. Although an extension remains the base case scenario, this will maintain the layer of uncertainty that clouds the United Kingdom.

The latest monthly growth data as of August indicate that production and manufacturing continue showing signs of weakness, growing -0.4 percent and -1.1 percent, respectively on a three-month rolling basis.

This lends credence to the negative productivity shock as a result of protracted Brexit process which was initially pegged to conclude by 1Q19.

“We thus expect continued sluggish growth momentum in the United Kingdom,” said Genghis Capital.