Broad swathes of the global economy appear to be moderating and could go into outright deceleration in due course as a confluence of factors dim the outlook.
Table 1: Analysis of Manufacturing PMI sub-components – October 2018
|Future demand: Further signs of moderation||Rising future demand
Declining future demand
|Spillover into trade demand notably weaker||Rising external demand
Declining external demand
|Business confidence still upbeat despite moderating conditions||Brighter outlook
Source: Markit Economics, China National Bureau of Statistics, US Institute of Supply Management, Singapore Institute of Purchasing and Materials Management.
An analysis of Table 1 indicates that the moderation detected in mid-2018 will intensify going forward, given that export orders are declining for a majority of countries covered in the table. While businesses remain somewhat upbeat about prospects, this optimism is set for some dampening. Trade flows, as shown by global shipping activity indices from RWI – Leibniz Institute for Economic Research and the ISL – Institute of Shipping Economics and Logistics and Harper Petersen, show heavy downward pressure on growth rates.
Assessment: Turning to proactive fiscal policy to pick up the looming economic slack
A sharper-than-expected deceleration in the global economy could grip Asian economies in due course, especially if a perfect storm of monetary tightening, financial turbulence, loss of economic momentum and geopolitical shocks occurs.
Looking ahead, it appears that the global monetary conditions will sustain its tightening trajectory with the US Federal Reserve showing the way and also means that even if central banks want to ease monetary conditions, there is little/no room to do so. While there is pressure to raise interest rates due to financial constraints and policy concerns, respective governments will find ways to juice up their economies. This means that proactive fiscal policy will come to the fore to provide stimulus should growth begin to flag.