Apple, Powell and the Risks to Global Growth: Economy Week Ahead

LAGOS (Capital Markets in Africa) –  “The principal worry I would have is really global growth,” said Fed Chair Jerome Powell. He’s not the only one. Our view, though, is that the trade truce, Fed patience, and strong U.S. labor markets, mean concerns are overdone. Global growth is set for a slowdown, not a meltdown.

There’s no shortage of troubling signals on the world economy. Looking at the economic data, factory gauges for China point to contraction, industrial output in the euro area’s four biggest economies is shrinking, and France’s business surveys are slumping. A profit warning from Apple — citing weakness in China — rings additional alarm bells.

Diving into the detail, though, reveals the main factors at work are idiosyncratic and temporary, not structural and long-lasting. Yellow Vests protests in France and a disruption to the auto industry in Germany won’t affect growth in 2019 and Italy’s budget battles have deescalated. Apple’s problems in China likely reflect in part stiffer competition from local rivals.

Two of the most significant risks to global growth — trade wars and Fed hikes — are lower relative to the end of 2018. The trade truce removes an estimated 0.3 percent drag on China’s 2019 GDP. A shallower path for Fed hikes takes the pressure off U.S. markets, and reduces an overhang for property and autos.

A U.S. economy creating 312,000 jobs in December, and Chinese policy makers doubling down on stimulus with a start-of-the-year cut in the reserve requirement ratio are additional reasons for cautious confidence. The recent spate of negative numbers demands heightened vigilance. For now, it doesn’t demand much else.

Source: Bloomberg Business News