Global Economic Outlook Continued to Soften in May
Much like other forecasts, the World Bank reduced its outlook for global growth in 2019 from 2.9 percent in its January report to 2.6 percent in its latest assessment. That represents a three-year low, down from 3.0 percent growth in 2018. In the June Global Economic Prospectsreport, the World Bank cited “heightened policy uncertainty,” especially regarding trade tensions, as one factor for revising its economic outlook lower.
The World Bank predicts 2.5 percent growth in the United States in 2019, with real GDP in China and the Eurozone slowing to 6.2 percent and 1.2 percent, respectively. Overall, it sees economic growth of 1.7 percent for advanced economies in 2019, with 4.0 percent growth in emerging markets.
For its part, the J.P. Morgan Global Manufacturing PMI contracted for the first time since November 2012, pulled lower by declining new orders, exports and employment, with output slowing to near neutral. On the positive side, the index for future output continued to express some optimism that production would rebound over the coming months, even as that measure dropped to the lowest reading since the question began in July 2012.
Nine of the top 20 markets for U.S.-manufactured goods had declining manufacturing sectors in May, up from six in April. In May, manufacturing activity in Japan, South Korea and the United Kingdom each slipped into contraction. The United Kingdom’s negative reading was the first since March 2013, and it is a sign that Brexit uncertainties have finally taken a toll, with stockpiling artificially propping up its PMI figures in recent months.
The IHS Markit Eurozone Manufacturing PMI contracted for the fourth straight month, with German activity declining for the fifth consecutive month, hovering near seven-year lows. Eurozone real GDP has fallen from 2.4 percent year-over-year in the first quarter of 2018 to just 1.2 percent in the first quarter of 2019. More positively, however, the unemployment rate fell to 7.6 percent, the lowest since August 2008.
Similarly, the IHS Markit Canada Manufacturing PMI contracted for the second straight month, with activity declining at the fastest pace since December 2015. Exports contracted for the fifth time in the past six months, but there was optimism that production would rebound in the months ahead. At the same time, the unemployment rate declined to 5.4 percent in May, the lowest since the survey began in 1976, highlighting a still-tight labor market.
Mexico was also subpar. After being marginally positive in April, the IHS Markit Mexico Manufacturing PMI pulled back to neutral territory in May. Mexican real GDP decelerated to just 1.2 percent year-over-year in the first quarter, and industrial production fell for the sixth consecutive month in April, likely hurt by the timing of Easter. At the same time, manufacturing production declined 0.4 percent year-over-year, the first negative reading in 13 months.
There was mixed data out of China in terms of sentiment surveys. The Caixin China General Manufacturing PMI expanded for the third straight month, albeit very sluggishly, but the index for future output fell to the lowest level (52.6) since that measure was added seven years ago. Interestingly, the official manufacturing PMI data from the National Bureau of Statistics of China contracted once again. It was the fourth negative reading in the past six months, led lower by weaknesses for small and medium-sized manufacturers in China.
The U.S. dollar has depreciated 1.4 percent against major currencies since the end of May, according to the Federal Reserve. Yet, the longer-term trend continues to reflect an overall appreciation in the U.S. dollar. Indeed, the U.S. dollar has risen 8.1 percent since Jan. 25, 2018, with manufacturers continuing to cite foreign exchange risks in their earnings reports.
In non-seasonally adjusted data, U.S.-manufactured goods exports have fallen 1.2 percent through the first four months of 2019 relative to the same period in 2018. This suggests that international demand for U.S.-manufactured goods has weakened so far this year after experiencing better data in both 2017 and 2018.
Manufacturers continue to focus on key trade developments at home and overseas, including:
The submission of the U.S.-Mexico-Canada Agreement draft Statement of Administrative Action to Congress and ongoing efforts to promote passage of the agreement;
The suspension of potential tariffs on imports from Mexico;
Potential congressional action to pass a robust and long-term reauthorization of the U.S. Export-Import Bank;
Increasing U.S.-China tariffs and tensions, including the possibility that the two sides get back to the negotiating table to discuss a durable and enforceable trade deal;
The president’s declaration of a national security threat from automotive imports and a direction for new negotiations with the European Union and Japan; and
The U.S. decision to end India’s eligibility for tariff-free treatment under the Generalized System of Preferences.