European Central Bank Projects Global Growth to Slow in 2019

Report says US-China trade tariffs are weighing down global economic activity.

Global economic activity is expected to decelerate in 2019, but then remain steady over the following two years as China transitions to a lower growth path, according to the most recent Economic Bulletin from the European Central Bank (ECB).

“While global economic activity has remained resilient, it has become more uneven and signs of moderating momentum are emerging,” said the ECB. “The maturing global economic cycle, waning policy support across advanced economies, and the impact of tariffs between the US and China are weighing on global activity.”

According to the bank, the global economy continued to expand at a steady pace in the second quarter of 2018, supported by a rebound in activity in several advanced economies, particularly in the US, the UK, and Japan.

It said the growth rate for the third quarter in the US still indicates “resilient activity,” while in the UK, GDP growth was strong, partially reflecting an increase in government spending. And although the Japanese economy contracted during the same period, the bank said this was mainly due to temporary factors related to natural disasters.

However, the bank also said that survey-based evidence suggests activity will decelerate in the near term. For example, the global composite output purchasing managers’ index (PMI) (excluding the euro area) has been gradually declining since early 2018, which was attributed to a continued deceleration in global manufacturing activity. And consumer confidence has also recently declined, said the report.

The ECB forecasts that global real GDP growth (excluding the euro area) will be 3.8% for 2018, but will decline to 3.5% in 2019, and will be “broadly steady” for 2020 to 2021.

 “This projection path reflects the expected slowdown in the near term in some emerging economies, as financial conditions have tightened,” said the ECB. “Further ahead, the expansion in advanced economies is projected to slow towards potential growth.”

The ECB forecasts the pace of expansion in China to moderate gradually, while growth in euro-area foreign demand is projected to decline to 3.1% in 2019 from 4.3% in 2018, before rising slightly in the medium term. Compared with the September 2018 ECB staff projections, global GDP growth has been revised slightly downward for 2018 and 2019, which reflects the weaker outlook in some emerging market economies.

Growth in euro-area foreign demand has also been revised downward for 2019 and 2020, which the bank attributed to the effect of higher tariffs and weaker projected economic activity.

“While the temporary truce between the US and China sent a positive signal, there remains considerable uncertainty as to whether the talks will lead to a significant de-escalation of US-China trade tensions,” said the ECB.

“Other downside risks relate to a faster-than-expected tightening of global financial conditions leading to broader stress in emerging markets, uncertainties regarding China’s reform process, and political and geopolitical uncertainties, including risks related to Brexit.”

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