Global growth enters the summer in the doldrums

The global growth backdrop has remained tepid heading into the summer explained analysts at Wells Fargo. They forecast global real GDP growth in 2019 is 3.2%, the slowest since the Great Recession.

Key Quotes:

“The global growth backdrop has remained tepid heading into the summer. The Eurozone economy continues to teeter on the edge, with economic growth neither fast enough to reassure officials at the European Central Bank (ECB) nor slow enough to warrant more monetary stimulus. The weakness in Europe has been heavily concentrated in the manufacturing sector. The Eurozone PMI for manufacturing is firmly in contraction territory (left chart), as is factory order growth in Germany, a
key cog in Europe’s industrial engine.”

“Despite this weakness, the Eurozone’s larger service sector has hung in reasonably well, boosted by a resilient labor market. The unemployment rate in the Eurozone has declined 0.3 percentage points year-to-date, and year-over-year job growth in Q1 was only about half a percentage point slower than in the United States. Core inflation remains well short of the ECB’s target, however, and was just 0.8 percent on a year-ago basis in May. Accordingly, policymakers at the ECB refrained from easing monetary policy further in June but once again pushed back their forward interest rate guidance, pledging to keep rates at current levels through at least the first half of 2020.”

“Some central banks have already embarked on easing monetary policy (India, Australia) while financial markets are pricing in the start easing cycles in several others (Mexico, Brazil). Our forecast for global real GDP growth in 2019 is 3.2%, which, if realized, would match 2016’s pace for the slowest since the Great Recession. Another escalation in the ongoing trade spat, should it occur, could push the global economy to lows not seen in a decade.

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