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Macroscope | War in Syria and US-China trade tensions strain global economic confidence
David Brown says financial instability may be about to return as trade tensions between China and the United States, and the threat of US-Russia military confrontation escalating in Syria, affect economic confidence indicators around the world
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No one said it was ever going to be easy. Putting the world economy back on the road to recovery was always going to be fraught with risk. But global growth now faces the daunting task of being trapped between a rock and a hard place. The outbreak of global trade tensions and the nightmare scenario of possible conflict between the US and Russia over Syria pose deadly risks for world economic recovery. It begs the question where our future growth is going to come from.
Economic confidence can be a fickle thing at the best of times but it is the lifeblood that drives the global economy forwards. Consumers need to feel upbeat about future prospects for income growth, employment and well-being. Businesses need to feel secure about committing new capital to investment, inventories and production. Exporters must feel sure about the global marketplace for trade. And governments need assurance that their economic plans are not going to be derailed.
Watch: Christine Lagarde shares her views on Sino-US trade tensions
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Recent events could conspire to turn what has been near-stellar global economic activity in the last half of 2017 into an anticlimax this year. The worry is that global confidence has already passed tipping point, financial market stability is poised on a knife-edge and consumers, business and investors could soon end up on the defensive. Early signs of strain are already showing in key confidence data, raising questions about whether the game is already up for stronger growth ahead.
Weaker trade worries, Brexit uncertainties and the gloomy global backdrop are beginning to take their toll. If Germany sneezes, Europe always catches a cold
In the major economies, benchmark business confidence indicators are looking past their best. The US Purchasing Managers Index for manufacturing has enjoyed rampant recovery in the past few years, surging to a 14-year high of 60.8, well above the threshold 50 boom-or-bust line. US companies have had a huge windfall from President Donald Trump’s tax cuts, but it is hard to see how optimism can extend much more, especially given the negative geopolitical backdrop right now.
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Europe’s business sentiment indices have been firing on all cylinders, charged up by the European Central Bank’s colossal monetary stimulus in the past few years. Germany remains in the vanguard, but there are strong hints that momentum is starting to stall. German orders, output and exports all dipped last month, hinting at potential fault lines in the business outlook.
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