Europe, China at center of growth fears

Analysts at Wells Fargo, point out that the US, China and the Eurozone represent almost one half of world’s GDP, and all three are showing signs of slowing growth.

Key Quotes:

“The United States, the Eurozone and China account for nearly one half of global GDP on a purchasing power parity basis, making the growth prospects for these three players crucial for the global economy as a whole. All three have shown signs of slowing economic growth of late, with Europe in particular exhibiting concerning signs of weakness. This weaker growth outlook has in turn translated into a slower pace of monetary policy tightening among the world’s major central banks than was previously anticipated.”

“In Europe, real GDP data were lackluster in Q4-2018, with the year-over-year pace of growth at just 1.2%, the slowest since 2013. The initial purchasing manager indices for January were not any better, weakening over the month and barely remaining in expansionary territory. Against this softer backdrop, we think that the European Central Bank will refrain from raising rates a bit longer than we originally expected.”

“In China, real GDP growth dipped to 6.4% year-over-year, down from 6.5% in Q3-2018. The Chinese economy grew 6.6% in 2018, the slowest pace since 1990.”

“Chinese policymakers have done their best to combat this slowdown via monetary and fiscal stimulus, but without a clean resolution to the trade situation, a more marked slowdown is likely in store in 2019. At present, our forecast for Chinese real GDP growth in 2019 is 6.2%.”

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