The global economy has lost considerable momentum in the past year.
There was further evidence of this last week with the release of GDP data out of both the UK and Germany.
The UK economy managed to avoid entering a recession – technically measured as two consecutive quarters of negative growth — in the third quarter, registering quarterly growth of 0.3%.
This followed a 0.2% contraction in the second.
However, the year-on-year growth rate of just 1% represented its slowest pace since 2010.
The underlying picture for the UK economy is one of softening growth amid ongoing Brexit uncertainty and the impact this is having on business and households. Indeed, for much of the last two years, business investment has been contracting.
Similar to the UK, the German economy also avoided — albeit narrowly — the ignominy of falling into recession in the third quarter.
The eurozone’s largest economy posted very modest growth of just 0.1% in the period, after contracting by 0.2% in second quarter.
In year-on-year terms, the economy recorded a very subdued 0.5% growth rate.
The German economy is being hampered by the slowdown in manufacturing and global trade, linked – in part — to trade tensions between the US and China.
It is also suffering from weakness in its important car industry, which is having to adjust to new regulations as well as reduced demand.
This slowdown in the German economy is also, not surprisingly, having an impact on the eurozone.
Third quarter growth for the currency bloc was confirmed, last week, at a very muted 0.2% in the period, with the year-on-year pace of growth running at just 1.2%.
Meanwhile, recent GDP data from the US show the world’s largest economy easing to a 2% yearly rate, which is its slowest pace of growth in a number of years.
In terms of the world economy, the IMF has cut its global growth forecast to 3% for this year.
The slowdown in activity is widespread. GDP growth has weakened in all the major economies.
The IMF is forecasting growth of 1.7% in advanced economies for both 2019 and 2020, down from close to 2.5% in the past couple of years.
The OECD had also reduced its growth forecasts, to 2.9% in 2019 and 3% in 2020. These would represent the weakest annual growth rates since the financial crises.
Both the IMF and OECD see the risks to the economic outlook as being tilted to the downside.
A real concern is that the ongoing weakness in manufacturing will spill over into the services sector and hit labour demand.
This would impact household incomes and spending.
However, it is not all negative in terms of the outlook.
The global slowdown has generated a response from authorities. Monetary policy is turning even more accommodative globally, with numerous central banks cutting rates.
In addition, the sharp fall in bond yields over the past year represents a significant easing in monetary conditions, while there has been a marked improvement in financial markets generally this year, which should aid growth.
Fiscal policy is also becoming more supportive of growth in some economies.
Meanwhile, household spending power is being boosted by a pick-up in wage growth at a time of continuing subdued inflation, while labour markets remain strong.
Overall, in light of the high degree of uncertainty over the outlook, a vigilant eye will need to be kept on macro indicators over the coming months.
In particular, surveys of business conditions should provide clues as to whether the world economy will weaken further or see some strengthening in activity in 2020.
John Fahey is senior economist at AIB
