Jul 24, 2019

The continuing global slowdown

Illustration: Rebecca Zisser/Axios

The first half of the year has been weaker than expected for the global economy, and the main cause is a significant slowdown in manufacturing and trade.

What's happening: The IMF wrote down its global growth expectations for the third time this year, pointing squarely to the U.S.-China trade war that has thrown a wet blanket on cross-border trade and investment, sending manufacturing into a recession in the U.S. and in an increasing number of countries around the globe.

  • "Risks to the forecast are mainly to the downside," IMF economists said in their latest World Economic Outlook, released Tuesday. "They include further trade and technology tensions that dent sentiment and slow investment."
  • Trade volume growth fell to around 0.5% year-over-year in the first quarter, IMF reported, and likely worsened in the second.

Why it matters: Manufacturing is a relatively small portion of the U.S. economy, but it remains a lifeline for much of the rest of the world.

Driving the news: Eurozone manufacturing activity fell to its lowest in more than 11 years this month, according IHS Markit figures released this morning. That number follows a report out of Britain showing manufacturing orders in the second quarter falling to their lowest since 2009.

The big picture: Things are moving clearly and quickly negative. Manufacturing in 2 of the world's 3 largest economies — China and the eurozone — is contracting (at an unprecedented pace in the eurozone), with the U.S. hanging in positive territory by less than half a percent.

  • A global measure of the manufacturing industry from IHS Markit showed its weakest reading in nearly 7 years last month.
  • Emerging markets, responsible for most of the world's growth, also are beginning to slow notably, data from the Institute of International Finance shows, with analysts highlighting in a recent report that "deteriorating manufacturing sentiment is becoming more broad-based globally."

The U.S. is also in the midst of a transportation recession. Freight shipments across all modes of transportation — truck, rail, air and barge — fell 5.3% in June, the seventh month in a row of year-over-year declines, according to the Cass Freight Index for shipments.

Yes, but: Economists remain hopeful that things will turn because the slowdown seems largely the result of political decisions, rather than a fundamental loss of demand.

  • That may not mean much as there's no sign any of the world's economically damaging political decisions are reversing anytime soon.

Go deeper: The world can't afford a trade war right now

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