| Global trade volumes soft, momentum in industrial production (IP) still negative in August. The Netherlands Bureau of Economic Policy Analysis estimates that global IP declined by 0.3% m/m, lowering its yr/yr change to 0.1% from 0.9%. World trade volume increased by 0.5% m/m in August, after increasing by 1.4% in July, but is up by only 0.1% from three months ago and down 1.2% yr/yr. China’s economic slowdown and U.S.-China trade uncertainties are driving the global slump. |
| Export volumes are falling most in advanced economies (-1.2% yr/yr). Euro area export volumes between June and August declined by 1.4% from the same period last year, the U.S.’s declined by 0.3% and Japan’s declined by 0.1%. Manufacturing PMIs in Germany, Japan, the Euro area, South Korea, and the UK have been in contraction territory (50). The U.S. ISM manufacturing sentiment index tumbled in August and September, reflecting sharp declines in new export orders, but regional manufacturing surveys point to a stabilization in U.S. manufacturing activity. |
| The China manufacturing PMI leads world industrial production by a few months. Accordingly, world IP and trade should remain subdued at least through year-end. China’s economic problems extend beyond tariffs, as rising unit labor costs, mounting debt burdens and a marked slowdown in labor force and productivity growth underlie decelerating potential growth. |
| A U.S.-China trade agreement would lessen some uncertainties, lift global business sentiment, and unclog supply chains. So far, however, China’s economy has been unresponsive to its stimulus initiatives, and slower global growth is dampening demand for Chinese goods. |
| We expect global production and trade to stabilize in H1 2020, but then rebound only modestly. Raw industrials prices should move up in anticipation of the IP trough. |
Dr Mickey D. Levy
Chief Economist US, Americas and Asia
+1 646 949 9099
mickey. levy@ berenberg-us. com
Roiana Reid
Economist
+1 646 949 9098
roiana. reid@ berenberg-us. com
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