Daily Commentary BY THE CURVE TEAM –

Global Outlook Fading

22nd of January, 2019

The outlook for the global economy continues to fade after some more soft data, this time from the world’s soon to be biggest economy.

Yesterday’s monthly activity data dump from China also included the latest update on GDP. Following the sharp deterioration seen in their latest trade data, the annual pace of growth in China has now slowed to the same pace it dropped to during the GFC.

A growth rate north of 6% is still nothing to sneeze at given the sheer size of the economy compared to a decade ago. Authorities are also going to keep their foot on the accelerator to keep the economy humming with a further 150 million Chinese expected to migrate from the land into cities over the coming years.

The key though is that their economy is slowing and as we have seen from other trade numbers from key trading partners of China, it is impacting the broader global economy.

A slow down in China means a slowdown in global growth given how much they contribute to the global economy. Overnight the IMF went as far as downgrading their expectations for growth over the year ahead. Their official forecast only dipped from 3.7% to 3.5% but it was their accompanying statement that was more important.

The IMF is worried that the risks to the outlook are growing, saying that “a range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given high levels of public and private debt.”

It adds to the ongoing uncertainty over the outlook but the real key is the huge overhand of debt globally that has piled up on government, corporate and household balance sheets. With central banks no longer pumping money into the system and the Fed actively removing it, debt will become the key focus for many as funding dries up.

David Flanagan

Director - Interest Rate Markets