The global economy has hit a soft patch, putting the robust US economy at risk. Economic output in Japan and Germany contracted in the third quarter, while in October, consumer spending has hit the lowest in China in five months. Besides that, the bank lending has fallen in China as well.
Across the globe, economists and business executives warned about a common denominator that is hurting growth: trade battles among the U.S., China and others. Tariffs are hitting some businesses and worries about the impact of worsening trade discord are also weighing in on sentiment.
The global scenario stands in contrast to a U.S., economy that expanded at an annualized rate of 3.5% in the third quarter.
Germany has reported a contraction in GDP to 0.8%, weakest in 3.5 years, whereas, Euro Zone grew at an annualized rate of 0.7% in the third quarter, its weakest performance since early 2013. Japan economy contracted at an annualized rate of 1.2% in the third quarter after expanding at a 3% annually in the previous quarter.
The U.S. is somewhat insulated from an international slowdown because its exports are only about 12% of gross domestic product, compared with a global average of about 29% and even higher in Germany, meaning the U.S. is less exposed than most countries when the global economy weakens. On Tuesday, the Organization of the Petroleum Exporting Countries cut its forecast for global economic growth to 3.5% for 2019 from 3.6% previously, saying that “the slowdown in the global economic growth trend has become more accentuated lately.” It pointed to trade tensions and tightening monetary conditions, notably U.S. interest rate increases. With global growth slowing, it sees demand for petroleum also slowing, which is weighing on oil prices.
China’s slowdown has been most felt in factories around the world. According to a global measure of manufacturing activity compiled by J.P. Morgan, output rose at the slowest pace in 28 months during October, while export orders fell for the second straight month.
In Germany, a rise in trade barriers threatens what has been a major source of strength for Europe’s powerhouse economy. German companies are major exporters, having stretched their supply chains around the world and invested heavily in selling to Chinese consumers and companies. German exports of goods fell 1.2% in September from that month a year earlier, led by a 2.2% decline in shipments to countries outside the EU, according to the German statistics body. German industry is so uncertain about how U.S. trade policy could impact its business that when luxury car maker BMW AG revised its core profit figures down last week, the company warned that even that forecast may not hold to the end of the year.