Global Economic News Paints a Gloomy Picture

The last few days have been busy ones for global economic reports. Most of the reports have pointed to a global economic slowdown, with the U.S. being one of the few countries that have produced positive surprises.

Bloomberg host Jonathan Ferro stated this morning, “Global growth is looking soft, Europe is looking terrible, China looks dreadful, and the United States looks pretty decent still.”

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The first report that came out was China’s Purchasing Managers Index. The manufacturing portion of the index has been trending lower since the third quarter of 2017 and it has dropped below the critical 50 level. As with other PMIs, readings above 50 are an indication of economic expansion and readings below 50 are a sign of economic contraction.

The February reading for China’s Manufacturing PMI came in at 49.2. This is the third straight month below 50 and it is the lowest reading since February 2016. The new export orders dropped to a reading of 45.2 from 46.9 in January. That is the lowest reading for new export orders since February 2009.

The second disappointment came from India’s fourth quarter GDP report. The report showed that India’s economy grew by 6.6% in the quarter, but that was below the expected 6.7% rate and it was down from 7% in the third quarter. The GDP growth peaked in the second quarter at 8%.

Slumping consumer demand was cited as one reason for the slower growth as well as slower global growth. There are also concerns that the economy won’t be able to return to higher GDP growth rates while tensions between India and Pakistan are elevated.

The third report that showed slower global economic growth came from Brazil. The country’s fourth quarter GDP growth rate dropped to 0.1% from 0.5% in the third quarter. The annualized growth rate fell to 1.1%.

Brazil emerged from a recession in the first quarter of 2017 with GDP growth of 1.5%, but the momentum has waned since then. Each of the last seven quarters has shown growth rates from 0% to 0.5%.

The slow recovery led to the election of pro-business candidate Jair Bolsonaro as President last month. The soft GDP reading for the fourth quarter is indicative of the challenges President Bolsonaro is facing.

The lone report that came out and surprised in a positive manner was the fourth quarter GDP report for the United States. The initial look at the indicator showed growth of 2.6%. This reading was above the estimated 2.2%, but it was below the third quarter growth rate of 3.4% and the second quarter rate of 4.2%.

The lower expectations were the result of the ongoing trade war with China and the global economy slowing more dramatically, but it was a positive surprise never the less. With the results from the fourth quarter added in, 2018 showed overall growth of 3.1% over the past year and that is the highest annualized rate since the second quarter of 2015.

Obviously economists and investors are hoping a deal can be struck between the U.S. and China. With so many parts of the globe seeing an economic slowdown, having the world’s two largest economies working together again would certainly boost confidence. I have stated before that a new trade agreement won’t cure everything that ails the world economy, but it certainly won’t hurt it either.

The U.S. does seem to be holding up better than most other countries, but I don’t think our economy is strong enough to stand alone if there is a worldwide recession like we saw during the financial crisis in 2007-2009. Having some of the tensions removed from the picture would probably help the global economy. An agreement on Britain’s exit from the EU, India and Pakistan toning down the tension between them, and an agreement between the U.S. and China would certainly go a long way in helping the global economy.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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