Trade worries are starting to slow down the growth story

Frankfurt, Zurich

From Japan to Germany, from economic numbers to profit warnings, there’s no shortage of evidence that the world is feeling the pain of a slump in trade.

In Asia, South Korea and Japan reported declines in exports, while European powerhouse Germany is seeing its manufacturing industry shrink at the fastest pace in six years. Shipping giant Maersk said that profit will fall short of expectations, and Chief Executive Soren Skou said the outlook for this year is bleaker.

A UBS tracker puts global growth at the weakest in a decade, and the worries have overwhelmed central bankers, who’ve put planned policy tightening on hold. Minutes of the Federal Reserve’s last policy meeting highlighted slower growth in China and Europe, ongoing trade disputes and complications from Brexit.

Due to those worries, several participants “nudged down their outlooks for output growth,” the minutes showed.

“Uncertainty is the big buzzword for central banks,” Carsten Brzeski, ING Diba chief economist, said. “Maybe if all these external risks turn out benign, then we might see another move by the Fed, another attempt by the ECB to normalise. But judging from today, the probability that all these risks will have a benign outlook is pretty low.”

In the euro area, the manufacturing Purchasing Managers Index dropped to a level consistent with contraction. IHS Markit, which compiles the report, said the 19-nation economy may struggle to register growth much above 0.1 per cent this quarter.

Orders fell for a second month, with companies citing “global trade protectionism worries, Brexit, the downturn of the auto sector, increased political uncertainty.”

But there were some positive nuggets. Services proved a bright spot, and it pushed the overall composite PMI to a three-month high.

France also offered some support, reporting a better-than-forecast PMI that may hint at a stabilisation after a string of disappointing economic readings.

For Skou, his peers, and global manufacturing as a whole, the latest figures show that a truce in the US-China trade war can’t come soon enough. The latest reports are that negotiators are working on multiple memorandums of understanding that would form the basis of a final trade deal, though no breakthrough is expected during talks this week in Washington.

“We see a world economy that is growing less this year than last year and a lot of trade tensions,” Skou said. “Negotiations are ongoing between the US and China. It seems like they have positive momentum for now but we don’t believe that’s the last of trade tensions because the US also wants to have a discussion with Europe.”

— Bloomberg