In most developed countries, the manufacturing industry is already in recession, while emerging ones are slowing down, which can be considered as a very negative combination for global growth prospects.
In June, the global manufacturing industry was heavily constrained, coupled with a number of factors related to the global economic uncertainty due to the commercial war, the weakness of the European Union economy, primarily Germany, the imbalance of some emerging countries, and Britain’s exit to the EU.
The manufacturing procurement manager index (BMI) has fallen below 50 points in several developed countries (this separates growth from the downturn), indicating that the industry is in recession. Data from the euro area has been particularly weak for months, which is largely due to the deteriorating performance of the previous engine, Germany. For Europe’s largest economy, analysts and the government have continually worsened this year’s growth expectations, and now GDP growth is expected to be below 1% for the year as a whole, with the economy slowly slowing to zero while the cabinet is reluctant to revive the budget there would be serious room for maneuver. Of the large European economies, only France is showing some strength, and Italy, with its budget and debt problems, is also on the verge of recession. However, Spain may be in the biggest trouble, where the BMI has been so low that it is a serious recession.
Meanwhile, the trade war between the United States and China is sticking to the growth of the global economy. Not only do these two countries grow their taxes on each other, but uncertainty has a negative impact on the entire world economy. The Chinese BMI has been moving close to 50 points for months, but the US has only approached this level in the last seven months. In the face of a multi-year low point, more and more analysts believe that a significant monetary stimulus will be needed in the US to avoid a severe slowdown. The deterioration of the country’s economic situation is particularly unfavorable to the global economy, as the slowdown in the US generally has serious spill-over effects.
The UK economy is also affected by the effects of Brexit. The BMI fell to 48 points in the country and, as far as dynamics is concerned, is a matter of serious concern, as we could see values well above 50 points a few months ago. For a while, stockpiling has saved British GDP (many have accumulated large stocks to prepare for any shortage of goods due to Brexit), but the momentum has already run out and uncertainty remains. In other words, it is not yet possible to know what the British are finally leaving from the EU (even the hard Brexit is conceivable), which is cautious for both households and companies.
Meanwhile, the problems of emerging nations in the US dollar have also surfaced after the dollar interest rates have risen in the past one or two years. In addition, geopolitical risks have not been solved, Russia is still fragile, and in Turkey, apparently, the build-up of authoritarian regimes, which are not rewarded by investors, is followed by falling economic performance following the exchange rate crisis, and stabilization is still waiting.
In the next period, the United States and China can reach an agreement on trade tensions – which is a good chance after the G20 summit – but otherwise the world economy can easily slow down. Only the accommodative monetary policy of the major central banks and the fiscal stimulus of the governments could help some of this, but the latter has little room for maneuver, and where it would be (Germany), they are still reluctant to take these steps and look more at the slowdown in growth.