World economy braces for global trade slowdown in 2019

Traders work on the floor of the New York Stock Exchange (NYSE) on December 03, 2018 in New York City. Source: Spencer Platt/Getty Images/AFP

By Emma Richards | 2nd January 2019

THE world is heading for a global trade slowdown in 2019 as financial markets grow increasingly worried about the world economy, fearing things could turn ugly fast if a meaningful deal isn’t reached in the US-China trade dispute.

The World Trade Organisation’s (WTO) chief economist, Robert Koopman, told Bloomberg all indicators point to a lowdown.

“When you look at those leading indicators, they continue to weaken. It’s almost like a death from a thousand cuts,” Koopman said in an interview.

“There’s not any one big change in those leading indicators but, boy, they are starting to add up.”

SEE ALSO: Trade: G20 statements show US, China are on different pages

These indicators include purchasing manager indices from around the world, and air and sea freight numbers; all of which point to slowing global trade momentum.

“If we have an expectation that it is going to move in any direction it’s going to be down,” Koopman said of the 2019 projections.

What a difference a year makes. At the start of 2018, optimism about a robust global economic outlook was almost unanimous among economists.

But Reuters polls of more than 500 economists conducted in October showed a downgrade to the outlook for 18 of 44 economies polled, with 23 unchanged. Only three were marginally upgraded.

Shipping containers being loaded onto Xin Da Yang Zhou ship from Shanghai, China at Pier J at the Port of Long Beach in Long Beach, California, U.S., April 4, 2018. Source: Reuters/Bob Riha Jr./File Photo

Bloomberg’s own readings on its Trade Checkup tell the same story as the WTO. Of the 10 readings the business analysts use to check in on the health of global trade, most are now at the lower end of their average territory.

Chang Shu at Bloomberg Economics places the blame predominantly at the feet of the tit-for-tat trade dispute started by the United States, warning that “In 2018, the trade war was the dog that barked… In 2019, it will bite.”

But Koopman doesn’t fear the direct impacts of the trade war, so much as the knock-on effect he expects to send ripples around the world.

While China and the US account for almost 40 percent of global output, the goods trade between the world’s two largest economies represented less than 3.2 percent of global trade, according to the WTO.

SEE ALSO: US will lose the trade war – but the whole world will suffer

Instead, Koopman said, the real risk is how those trade conflicts could weigh on businesses and consumer sentiment, and spending around the world.

“The shoe that all of us are waiting to see is: Does the uncertainty – the policy uncertainty raised by this conflict – spill over into investment and consumer behaviour,’’ he said.

The US’s own Federal Reserve has expressed similar concerns, with chairman Jerome Powell on Wednesday pointing to investor and business fears amid trade tensions.

Powell’s moves to prevent the US economy overheating – including raising interest rates and unwinding its bond-buying stimulus programme – has led to run-ins with President Donald Trump.

US President Donald Trump (L) signals the end of ceremony after announcing Jerome Powell (R) as nominee for Chairman of the Federal Reserve in the Rose Garden of the White House in Washington, DC, November 2, 2017. Source: Saul Loeb/AFP

The president’s threats to fire Powell, who he appointed himself a year ago, has lent more instability to markets that have had their worst year since the 2008 financial crisis.

China is taking a hit too as factory activity contracted in December for the first time in over two years, according to Reuters. In November, industrial output rose the least in nearly three years, while earnings growth at industrial firms fell for the first time in nearly three years.

According to Bloomberg, major businesses have begun expressing fears and warned of being hit by the mounting global slowdown. And Koopman warns there are already signs business and investment are slowing as consumers hold back on spending.

The impacts of this will go far beyond just the US and China; the problem is global, with the International Monetary Fund (IMF) warning, without a solution, the world will become a “poorer and more dangerous place.”