One of the key engines of the world economy – global trade – looks increasingly precarious as leading indicators point to a meaningful slowdown next year, according to the World Trade Organisation’s chief economist.
“When you look at those leading indicators, they continue to weaken. It’s almost like a death from a thousand cuts,” Robert Koopman said.
“There’s not any one big change in those leading indicators but, boy, they are starting to add up.”
Financial markets have been increasingly concerned about a possible slowdown in the world economy next year and the impact of the trade war between China and the United States.
US Federal Reserve chairman Jerome Powell on Wednesday pointed to investor and business fears over trade tensions and global growth going into 2019.
FedEx and other firms have also warned of being hit by slower economic growth.
The World Trade Organisation (WTO) in September downgraded its forecast for global trade growth, predicting the volume of goods moving around the world would expand by 3.9 per cent this year and slow to 3.7 per cent in 2019.
Koopman said the organisation was holding to those forecasts for now, although he added that risks were rising that they could be downgraded again early next year.
A WTO tracker of leading indicators such as purchasing managers’ indices from around the world and air and sea freight points to slowing global trade momentum, Koopman said.
“If we have an expectation that it is going to move in any direction it’s going to be down,” he said of the 2019 projections.
Reasons for concern are surfacing in all the world’s major economies, Koopman said, citing the US Federal Reserve downgrading of its own projections for US growth next earlier this week.
“We’re concerned about the [European Union]. We’re concerned about China. We’re concerned about the US,” he said.
Koopman said the biggest concern is not over the direct impact of the tit-for-tat tariff wars that the US has engaged in, most prominently with China but also with allies from the European Union to Canada.
Although US and China together account for almost 40 per cent of global output, the goods trade between the world’s two largest economies represented less than 3.2 per cent of global trade, according to the WTO.
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,’’’ Koopman said.
There are some initial signs that business investment is being hit, and that consumers in both the US and China are starting to hold back on purchases, Koopman said.
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“It isn’t a disaster yet,” he said. “It’s weak, but if we start to see a downturn, real declines in investment, that could be pretty problematic for global trade and global growth in general.”
The WTO’s 3.9 per cent forecast for global trade growth this year is down from 4.7 per cent in 2017.
Global trade volumes grew at a rate of just 1.8 per cent in 2016.