In Europe this applies to Germany, Switzerland and Sweden. Nevertheless, we do not believe the world will slide into recession – the slowdown looks likely to be temporary
Recent US economic data have been mixed. The economy is firing on only one cylinder at present. Without personal consumption, growth would be extremely meagre. The real estate market has stalled, and shrinking construction investment is putting a brake on GDP growth. So it is no surprise that the Fed is now increasingly emphasising the risks. Interest rate hikes are likely to become less frequent in 2019.
The eurozone economies are weakening. Trade conflicts are cutting into exports, and the new automobile emissions testing rules (WLTP - Worldwide Harmonised Light Vehicle Test Procedure) are placing a huge burden on European automobile makers – the necessary approvals have simply not been issued. There is no sign that the growth setback will be quickly rectified. The ECB will therefore proceed with extreme caution and use its interest rate tools very sparingly – if at all.
GDP growth in the third quarter of 2018 was down 0.2% compared with Q2. Net exports and private consumption both had a negative impact. The lack of approvals for automobile models under the new emissions standards (WLTP) put a damper on car deliveries, and that was reflected in consumer spending and foreign sales. As this is a one-off problem, compensating effects can be expected in the quarters ahead, but by itself this will not be enough to get growth back on track.
After powering ahead at full throttle during the first half year, the Swiss economy has suddenly ground to a halt. GDP in the third quarter shrank unexpectedly by 0.2% compared with the previous quarter under the impact of falling exports and flagging investment in plant and equipment. The production side was also negatively affected by a fall in hydroelectric output as a result of low water levels in 2018’s unusually dry summer. This, clearly, is an exceptional factor. Looking ahead, growth has passed its peak. Economic weakness in the neighbouring eurozone is having a braking effect on Switzerland. Added to that is the uncertainty created by current trade conflicts. In this environment companies tend to postpone investments. Even so, we see no danger of the economy going into a tailspin. Consumer spending should generate growth, and corporate investment will start to make a positive contribution again despite weaker momentum in the quarters ahead.
It looks as if the Chinese government has braked rather too hard. The aim was to slow the rate of credit expansion. This has been achieved, but it has fuelled anxieties about the macroeconomic situation. The focus is now shifting back to economic growth. China’s State Council has passed a package of measures embracing a more pro-active fiscal policy, tax cuts, an accommodative monetary policy, significant stimulus for domestic demand and support for the financing of small and medium-sized enterprises and local authorities. The aim is also to head off the possible negative economic impact of the escalating trade conflict with the US.