GECS is pointing to slower global growth this year but not a major collapse.
There was a bounce in global confidence in Q1, after it fell to a record low at the end of last year. But confidence is below its level in Q2 last year and comfortably below its long run average.
Softening global economic growth is contributing to an easing of cost pressures. Meanwhile, the worry that their suppliers would go out of business is unchanged from Q4 2018.
Tricky quarter for the US
Interpreting the pace of economic slowdown in the US is tricky at present.
Despite a bounce in confidence, the new orders balance fell again this quarter in the US. This is pointing to a particularly soft first half of the year.
Any weakness in Q1 GDP is likely to have been caused at least to some extent by the government shutdown which extended well into January. But the jobs market remains buoyant and should underpin consumer spending this year.
Brexit uncertainty in the UK
Brexit uncertainty is slowing the UK economy. The Article 50 deadline for leaving the EU has been extended beyond 29th March. Indeed the UK may now leave the EU only after an extended delay – or indeed not at all. This uncertainty is having a negative influence on business confidence.
Biggest turn round in Western Europe
The biggest turn round in economic fortunes in recent months is without doubt the euro-zone. Growth slowed with gathering pace towards the end of 2018, by which time Italy was in technical recession and Germany stagnating.
Downside risks arise from Brexit uncertainty and from the US–China trade dispute. Germany’s export-driven growth model is under pressure as global demand slows especially from China.
Confidence rebounded sharply in the Middle East
Confidence in the Middle East was especially weak in the second half of 2018, reflecting lower oil prices and higher US interest rates. But both factors are now more positive and in Q1 2019 confidence rebounded quite sharply.
Oil prices have rebounded on the back of OPEC quota cuts late last year. Budgets across the region are set for various break-even oil prices. The higher the oil price the greater the likelihood of fiscal largesse.
China - a debt and demographics time bomb?
Growth in the Chinese economy has slowed after decades of rapid expansion. An extremely high level of debt, especially in the corporate sector, is a restraining factor at present.
In addition, a shrinking working age population is set to become a major headwind acting to reduce China’s growth potential. Technology-driven boosts to productivity may be the main driver of economic development in future.