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Global Quarterly Review – Another period of lackluster growth

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January 29, 2020: The Economist Intelligence Unit has recently published a quarterly report, examining and explaining the important political and economic trends and developments in G20 countries, the BRICS grouping (comprising Brazil, Russia, India, China, and South Africa), as well as key emerging markets.

According to the contents of the report, the fourth-quarter economic performance was weak across the G7 and BRICS countries. This poor outturn reflects sluggish global growth in 2019, owing to the combined effect of global trade tensions; a sharp deceleration in real GDP growth in the US, China and India; renewed volatility in emerging markets; and political uncertainty in a number of EU countries.

Among the G7 countries, the US recorded the fastest level of quarterly growth in the fourth quarter of 2019, at 0.4%. However, this still represents a slowdown compared with the third quarter, when growth stood at 0.5% quarter on quarter. The US economy began to show signs of strain in the final months of 2019. Rising production costs and slowing external demand weighed on business profits; as a result of this, as well as of deep uncertainty surrounding the direction of US trade policy, business investment slowed sharply over the course of the year.

Conversely, consumer spending remained firm, supported by continued job creation and an acceleration in wage growth. However, the latest labor market data show that the pace of job creation slowed sharply in December. In this regard, EIU believes that the labor market will continue to soften further in the coming months as business investment remains weak. Moreover, the US real GDP growth is forecasted to slow in 2020, to 1.7%.

In China, the world’s second-largest economy, the quarterly growth picked up to 1.5% in the fourth quarter of 2019, from 1.3% in the third quarter, as the conclusion of a first-phase US-China trade deal at the end of last year helped to alleviate part of the uncertainty that businesses and consumers were facing. This quarterly growth rate is in line with the government’s goal of GDP growth of 6% year on year in 2019—a rate strong enough for China to meet its target of doubling real GDP between 2010 and 2020. However, business conditions on the ground are unlikely to be as strong as suggested by headline GDP data, as the importance attached to meeting political targets leaves economic figures susceptible to manipulation.

Elsewhere in Asia, India and Japan recorded, respectively, the best and the worst rates of quarterly growth in October-December among our sample of countries. Over this period, India’s real GDP grew by 1.6% quarter on quarter, but this apparently strong headline figure was artificially boosted by the dismal performance of the Indian economy in the previous quarter (1.1% growth quarter on quarter), amid weak consumer sentiment and tepid investment. Nevertheless, a series of government stimulus measures, coupled with a low-interest-rate environment, are likely to spur demand and investment in 2020 and to produce a rebound in full-year real GDP growth, to 6.1% (up from an estimated 4.9% in 2019).

Meanwhile, Japan’s output contracted by 1.7% in the fourth quarter of last year, as a result of an increase in the rate of consumption tax in October. Consumer spending is likely to remain subdued in the first half of 2020 as consumers adjust to the higher prices of goods. However, the hosting of the Olympic and Paralympic Games in Japan in July-September will provide some support to the economy, and as a result, the real GDP growth is expected to average at 0.4% in 2020.

Among EU countries, performance improved slightly, but remained poor in the fourth quarter of 2019. France recorded the fastest growth rate of European G7 members, at 0.3% quarter on quarter, as domestic demand remained resilient to global trade tensions. Germany, an export-oriented country, proved more sensitive to global trade tensions, as its quarterly growth stood at only 0.2% in October-December. Over the same period growth remained lackluster in Italy and the UK, at 0.1%, as a result of high political volatility in Italy and Brexit-related uncertainty in the UK.

While EIU does not usually include Australia in its quarterly growth forecast releases, the recent catastrophic bushfires in south-east Australia compelled it to take a closer look at the country’s growth profile. The quarterly growth of Australia sank to just 0.1% in October-December, as a result of the slowdown in activity and the drop in sentiment that the bushfires have caused since they started in September. However, the quarterly growth will rebound in the first quarter of 2020, to 0.4%, as the start of construction works lead to an increase in investment.

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Posted on: 2020-01-29T12:29:00+05:00

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