Synchronized global slowdown
In December 2017, we saw a sharp rally in almost all asset classes as markets started pricing in what many called “synchronized global growth” for 2018. However, as 2018 started drawing to a close, fears of a synchronized global slowdown hit markets. All leading economies were expected to grow at a slower pace in 2019 as compared to 2018.
However, global growth surprised on the upside in the first quarter of 2019. The United States and China reported better-than-expected GDP growth numbers. However, over the last two months, economic data has again ignited fears of a synchronized global slowdown.
Europe PMI was weak
PMI numbers were released last week, and US Flash manufacturing fell to multiyear lows. In Europe, June flash Manufacturing PMI came in at 47.8. While the reading was slightly better than in May, it was nonetheless below 50. In its release, IHS Markit said, “The pace of eurozone economic growth remained subdued in June but edged up for a second successive month to reach a seven-month high.” It also said, “Optimism about the future meanwhile dipped lower, running at its lowest since late-2014, suggesting growth will remain weak in coming months.”
Japan looks weak too
Japan’s flash manufacturing PMI was also below 50 in June. Furthermore, June’s flash reading of 49.5 was below May’s final reading of 49.8. Japan’s exports also fell year-year-year in May, making it the sixth consecutive month of contraction. Chinese economic data has been dismal as well with May industrial production and fixed asset investment data missing estimates. The country’s car sales fell for the 11th straight month in May. US automotive companies like Ford (F), General Motors (GM), and Tesla (TSLA) also have operations in China. These companies have also been hit, as China’s automotive sales have been a particularly weak spot. Notably, Chinese stocks have underperformed global markets this year.
With growth stalling pretty much globally, the pressure is building on central banks to take appropriate measures.