Top of a Slippery Slope
March 2019
With the US agreeing to delay its proposed tariff increase, trade talks appearing to make progress, and growth appearing to slow a little less than predicted, the global outlook is better than anticipated. Nonetheless, the risks we have outlined before are still largely present, and seasonal uplift may be masking the start of a longer-term downwards trend.

Global growth is still looking to decrease from previous predictions and head towards 2.9% for 2019, rather than 3%. While US-China trade talks may be progressing smoothly, the broader global tariff scenario indicates a creeping rise in protectionism as countries look towards an uncertain future. China, India, Brazil, and the EU are all looking at various—sometimes unorthodox—measures to protect their economy and commodity markets.

While much has been made of China’s declining rate of growth—coming it an officially-announced 6.6% through 2018 that beat worst-case predictions—the Chinese government has been easing back on industry-restrictive curtailments year on year and announcing stimulus measures for certain industries, indicating the potential for the country’s rate of growth to decline slower than expected. There is a risk, of course, that measures from Beijing will not extend far enough to prevent a faster-than-expected decline in growth, further impacting the global market.

In Europe, the largest wildcard continues to be the looming spectre of Brexit. It is fair to say that absolutely nobody can be certain about how it will play out—the possibility of several different deals, no-deal, delays, or even a second referendum have all been passed through British parliament this past month, largely without any kind of consensus. While some measures, such as steel and end-product import tariffs, have been agreed upon, other issues—such as that surrounding the Irish border—are far from solved.

The global slowdown has been hard on Germany. As an export-focused country it is particularly vulnerable to shifts in demand from other countries. China, a serious importer of Germany’s automotive, saw its automotive market contract for the first time in 20 years, leading to a tiny 0.5% growth in German-China auto exports and indicating further trouble in the year ahead. Falling exports overall and a rapidly slowing rate of growth have edged it very close to a recession, with its economy contracting 0.2% in the third quarter of 2018. Overall growth for the year stood at 1.5%, a large drop from 2017’s 2.2%. This year may see growth fall to as low as 1%.

Those keeping a close eye on South Korea may have noticed that its exports have also been decreasing compared to previous years. January saw a 15% year-on-year drop, while February saw an 11.7% decline. Like Germany, it is an export-heavy economy and sends a great deal of product to China. These declines suggest that, if tensions and uncertainty are not resolved, growth could indeed be slower than anticipated—and some areas may see recession.