Global Economy in Charts: Ian Stewart, Debapratim De, Tom Simmons & Peter Ireson

Global economy in charts
Q2 2019
Ian Stewart, Debapratim De, Tom Simmons & Peter Ireson

Economics & Markets Research, Deloitte, London
Summary
1. Global activity continues to ease

2. Significant slowdown in euro area
3. Trade tensions have hit export-reliant economies
4. Rate expectations pushed back as central banks make dovish statements
5. Equities sold off in May with investors switching to bonds
6. 2020 UK growth heavily dependent on Brexit settlement
7. Risks to global growth tilted to the downside
2
Synchronised global slowdown
Growth slowdown concentrated in developed markets and China.
Post-
crisis
trend 2018 2019 2020
GDP growth: Actual & IMF forecasts (%)
‘11 – ‘17
Advanced
1.8 2.2 1.8 1.7
economies
Emerging
5.0 4.5 4.4 4.8
markets
World 3.6 3.6 3.3 3.6
Forecasts
Emerging
markets
World
Developed
economies
Source: IMF World Economic Outlook, April 2019

3
Recent fall in oil prices to exert downward pressure on inflation
Despite cuts in OPEC supply, slowing global growth has hit oil prices, which are down 20%
from the April peak.
4
Trade tensions and slowing global exports
The imposition in May of further US tariffs on Chinese imports and Chinese retaliation could
end trade growth’s brief return to positive territory.
5
German activity hit by trade gloom
Germany’s Ifo Business Climate Index, a bellwether for the whole European economy, is at
its lowest level in more than four years.
6
Italy forecast to barely grow this year
Italy is the weakest euro area economy, with manufacturing output contracting and
consumer spending slowing significantly.
7
Euro area expected to grow at slowest pace in six years
European growth prospects remain weak, as reflected in the industrial and consumer
confidence indicators.
8
US growth also softening
Global slowdown underway in trade, manufacturing and investment. Even in the US, where
growth has held up, a key industrial activity indicator suggests growth is at a two-year low.
9
Chinese slowdown continues
Chinese retail sales growth slowed to a 16-year low in April and investment growth remains
close to a record low.
10
Rate expectations lower
Dovish statements by US Fed Chair Jay Powell and ECB President Mario Draghi have sharply
lowered rate expectations, with markets now expecting two rate cuts by the Fed this year.
11
Escalating trade tensions hit equities in May
This year’s US equity rally was dented by news of further tariffs. The US S&P 500 fell 7% in
May but has recovered some of its losses after a dovish turn by the Fed.
12
Investors seek safe assets
Weaker global growth has lowered rate expectations and bond yields. The yield on 10-year
US treasuries and German bunds are down to their lowest levels in more than two years.
13
Brexit-driven stockpiling boosts Q1 UK growth
A rise in business investment, as British firms stockpiled goods for a potential no-deal Brexit
in March, delivered a sharp but short-lived acceleration in Q1 growth.
UK GDP growth: Actual and forecast (% YoY)
EU
referendum Forecasts
Quarter-on-
quarter growth
Year-on-year
growth
Source: Consensus Economics forecasts and Deloitte calculations 14

UK corporates braced for disruptive Brexit
UK corporates have adopted the most defensive strategies in more than nine years, with a
laser-like focus on cost reduction and a record high cash pile.
Source: Deloitte CFO Survey, Q1 2019
15
UK consumer holding up, manufacturing output drops
Low unemployment and rising real wages have supported consumer spending while
manufacturing output is contracting, consistent with the global industrial slowdown.
16
Nature and timing of Brexit key determinant of growth
In the event of a no-deal exit from the EU, NIESR* expects UK growth to slow this year and
the economy to contract in 2020. If a transition deal were to be struck, the UK is expected
to avoid a recession, with growth accelerating in two of three scenarios next year.
UK GDP growth: Actual and forecast, % YoY
2018 Nature of Brexit (or 2019 2020

growth Remain) forecast forecast
Continued EU membership 1.4% 2.2%
Single market and customs

1.4% 1.6%
1.4% union membership
Customs union only 1.2% 0.9%
Orderly no deal 1.2% -0.7%

*Source: National Institute of Economic and Social Research, April 2019
17
GDP growth in major economies: Actual & IMF forecasts
GDP growth (% YoY)

Post-crisis
trend 2019 2020
2018
forecast forecast
‘11 – ‘17
US 2.1 2.9 2.3 1.9
UK 2.0 1.4 1.2 1.4
Euro area 1.2 1.8 1.3 1.5
Germany 1.9 1.5 0.8 1.4
Japan 1.1 0.8 1.0 0.5
China 7.6 6.6 6.3 6.1
India 7.0 7.1 7.3 7.5
Source: IMF World Economic Outlook, April 2019
18
Contacts
Ian Stewart Debapratim De Tom Simmons Peter Ireson
Partner & Chief Lead Author & Economic Analyst Economic Analyst
Economist Senior Economist 020 7303 7370 011 7984 1727
020 7007 9386 020 7303 0888 [email protected] [email protected]
[email protected] [email protected]
Data for all the charts in this document was sourced from Thomson Reuters Datastream unless otherwise stated.
Charts as on 11th June 2019.
This publication has been written in general terms and we recommend that you obtain professional advice before acting
or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss
occasioned to any person acting or refraining from action as a result of any material in this publication.
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its
registered office at 1 New Street Square, London, EC4A 3HQ, United Kingdom.
Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a
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© 2019 Deloitte LLP. All rights reserved.

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Global economy in charts

Ian Stewart, Debapratim De, Tom Simmons & Peter Ireson

1. Global activity continues to ease

Source: IMF World Economic Outlook, April 2019

UK GDP growth: Actual and forecast (% YoY)

Source: Consensus Economics forecasts and Deloitte calculations 14

Source: Deloitte CFO Survey, Q1 2019

UK GDP growth: Actual and forecast, % YoY

2018 Nature of Brexit (or 2019 2020

Continued EU membership 1.4% 2.2%

Single market and customs

Customs union only 1.2% 0.9%

Orderly no deal 1.2% -0.7%

GDP growth (% YoY)

© 2019 Deloitte LLP. All rights reserved.

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