January Macro Dashboard
Global growth is set to stabilize and strengthen this year as trade tensions and political uncertainty ease, monetary policy remains accommodative, and manufacturing improves. However, risks are tilted to the downside. Growth is expected to be concentrated in the second half of the year, as the factors weighing on growth in 2019 subside. January flash PMIs largely surprised to the upside, with improvement in manufacturing. A clearer path forward with Brexit will bode well for the U.K. and Euro Area, while the ‘Phase One’ deal will aid global demand and trade. However, U.S.-EU trade tensions, coronavirus, rising Middle East tensions, and the Boeing production halt pose threats to the outlook.
Regionally, the U.S. consumer will continue to drive growth, albeit at a more moderate pace, as spending comes back in-line with income growth. Residential investment will aid GDP growth, and trade will be a modest contributor. However, trade tensions, tempered global demand, and the Boeing production halt will weigh on manufacturing and business investment. The FOMC is likely to remain on hold in the near-term as inflation and wage pressures remain subdued, while a solid labor market and services sector keep the economy on the right path. The ‘Phase One’ deal with China will be beneficial to the agriculture sector, but any increase in tensions with other trading partners would weigh on the outlook.
There are signs of stabilization in the European economy as uncertainty wanes and global demand rises, but risks remain tilted to the downside. Manufacturing PMIs turned higher in January—but remain in contractionary territory—confirming a bottoming in the manufacturing sector. The service sector is holding up well and the consumer will continue to drive growth. Confidence in Germany is improving amid waning trade tensions, and a post-election boost is afoot in the U.K., which will be a positive for global growth. However, U.S.-EU trade tensions and uncertainty surrounding post-Brexit trade negotiations act as downside risks.
Growth in Japan’s GDP is likely to slow in 2019Q4, weighed down by the consumption tax hike and the tsunami. However, growth is expected to stabilize and strengthen in 2020 as these weights fade, fiscal stimulus is implemented, and global demand rises. China’s path forward is more uncertain; while better-than-expected activity data, solid Q4 GDP data, and easing trade tensions portend stronger growth, the coronavirus outbreak during the Lunar New Year could reduce growth. Monetary policy will remain accommodative, and demand in the region is expected to improve. If the outbreak significantly weighs on China’s GDP growth, both fiscal and monetary policy could turn more accommodative in the near-term.