| Flashing amber instead of red: A growing number of indicators suggest that the downturn in global trade and manufacturing is approaching the bottom. None of these indicators is reliable. Financial indicators, which tend to turn around well ahead of economic data, are too fickle for that. Economic surveys, which are more reliable but have only a short lead time over actual output, have not yet shifted enough to confirm an imminent turnaround. Still, the fact that many indicators are pointing in the same direction strengthens hope that the worst could soon be over. |
| Waiting for tensions to fade: Since late 2018, we have maintained a simple call for the global economy: the downturn in global trade and manufacturing will end if and when the trade tensions stoked by US President Donald Trump start to fade. After these tensions escalated sharply in early May and then again in August 2019, the newsflow on tradeand Brexit has turned neutral to mildly encouraging in the past three months. |
| Growing evidence: Three categories of data point to a potential turnaround in early 2020. First, in line with other financial indicators, both bond yields and equity markets have risen in the past few months. This shows that markets are driven by genuine hope of an improvement to come. If the looser monetary policies of the US Federal Reserve and European Central Bank had been the major factor, yields would have fallen instead. Second, judging by economic surprise indices, hard economic data are no longer coming in worse than professional pundits projected. Third, some indicators of business sentiment and activity have started to bottom out. Expectations among German manufacturers, who are heavily exposed to global trade, are an obvious example (see chart). In IHS Markit’s Global Manufacturing PMI, export orders have stabilised and manufacturing output has edged up in the past two months. |
| Expect a modest upturn in 2020: We see no economic reason for a recession in the advanced world in the next two years. Unless political risks begin to mount again, trade and manufacturing should recover gradually over the course of 2020. Following a small upward revision to Eurozone GDP for Q3 2019 from 1.1% to 1.2% yoy, we raise our call for Eurozone growth in 2020 from 0.9% to 1.0% – the first upward revision after a series of downgrades. |
| Fingers crossed: Of course, it could all still go wrong. If the trade war between the US and China escalates again, if the US starts a new trade war by imposing costly import tariffs on cars from Europe and other regions, or if China’s generic downturn worsens, global trade and manufacturing output could weaken further. That risk remains serious. Fortunately, the recent newsflow has been mostly encouraging. As Trump is approaching election season and China is battling an ongoing loss of underlying growth momentum, both sides should be inclined to avoid a renewed escalation that would damage their own economies, as well as global business investment. |
Holger Schmieding
Chief Economist
+44 20 3207 7889
holger. schmieding@ berenberg. com
Kallum Pickering
Senior Economist
+44 20 3465 2672
kallum. pickering@ berenberg. com
Florian Hense
European Economist
+4420 3207 7859
florian. hense@ berenberg. com
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