The positive outlook for the global economy has recently lost some of its shine. Talk of a possible global trade conflict is undermining business sentiment. So far, this less optimistic mood has had little effect on the real economy. But if the current uncertainty puts a brake on investment activity, downside effects on economic growth would follow. Even so, we still regard the risk of an escalating trade war as manageable.
Donald Trump has threatened provocative new tariffs on imports from China, but the White House has lately struck a friendlier tone and seems ready to negotiate. China, too, would be open to talks with the US. So there might be a strategy behind the public war of words, with the two sides adopting threatening postures while actually moving towards negotiation. US corporations are still relatively relaxed about these developments. Tax reform is underpinning an upbeat mood in the world’s biggest economy.
Important leading indicators have recently sagged. Worries about tariffs and a possible trade war are dampening business sentiment. But even without the spectre of global trade disruption, it looks as if the cyclical upturn may now have peaked. That does not mean that the eurozone is heading for recession but merely that growth in the coming quarters will be somewhat weaker. The European Central Bank will terminate its asset purchases at the end of this year, but interest rates will stay very low for a long time to come.
Major leading indicators for the Swiss economy have been in retreat recently. Business sentiment has been hit by fears of a trade war, a somewhat less upbeat outlook for the eurozone and the appreciation of the Swiss franc against the US dollar. We believe this vindicates our conservative forecast that growth will be below the consensus expectation. We expect Swiss GDP to expand by 1.6% this year.
Chinese leading indicators present a mixed picture. While the official purchasing managers index, which chiefly relates to large enterprises, has been positive recently, the Caixin purchasing managers index, based mainly on responses from small and medium-sized businesses, has trended downwards. This divergence is probably due chiefly to differences in access to credit. While big enterprises, which are mainly state-owned, have little trouble raising finance, small and medium-sized businesses are feeling the impact of monetary tightening. Signs of weaker growth are still not directly observable, but German exports to China have fallen significantly since last November and that could be interpreted as an early sign of a Chinese slowdown. The coming weeks will show whether this is the case