September has started badly for the global economy. The step up in tariffs on US imports from China at the beginning of the month and the deepening of manufacturing weakness in the US heightened concerns over the health of the world’s two largest economies. Service sectors globally remain resilient in the face of the manufacturing malaise, with the gap remaining at an unprecedented high in August. But with no imminent end to the trade war it is only a matter of time before the trade-related weakness in investment spills over into consumption.
Global economic momentum is set to get worse before it gets better. The persistent strength of the US dollar in this low-growth, low-confidence environment adds to the sense of unease given the potential for US action to reverse the appreciation.
The manufacturing surveys released over the past week confirmed entrenched weakness. The JPMorgan global index saw its fourth month of contraction — the longest decline since 2012. It is also the most severe. More than half of the 30 countries tracked have manufacturing sectors in decline. Europe is hurting the most, with industry-intensive Germany in freefall. The export-dependent economies in Asia have also seen sharp declines.