It’s “time to play defense”, Barclays’ head of macro research Ajay Rajadhyaksha writes, in a new global outlook piece that strikes an overtly cautious, if not wholly dour, tone, as market participants look anxiously ahead to Q4.
Although the most recent news on the trade front has been positive (on balance) a comprehensive deal is still nowhere in sight, Donald Trump’s “sooner than expected” remark this week notwithstanding. Moreover, it’s crucial not to lose sight of the fact that for all the “good” news on China ramping up purchases of US farm products, tariffs have increased on both sides over the last two months.
“In our view, the news flow on trade, as well as data flow, has clearly worsened since… the end of June”, Barclays’ Rajadhyaksha writes, adding that “there are more tariffs in place than three months ago [and] every major economy is seeing a full-blown industrial/manufacturing slowdown”. At the same time, global trade continues to decelerate in the face of protectionism and tit-for-tat escalations.
Clearly, the trade tensions and persistent geopolitical tumult (which has gone into overdrive over the past month with the Saudi attacks, Brexit drama and now, Trump’s Ukraine scandal, hitting in rapid succession) have stoked all manner of uncertainty.
Rajadhyaksha goes on to lament the economic malaise in Europe, where Italy and Germany are teetering precariously on the brink of recession.
China, he says, has likely “downshifted to just 5.1-5.2% growth (q/q, saar) in H2 2019” while Barclays sees the US growing at just 1% in Q4.
As a reminder, recent data stateside has been mixed, but the most recent IHS Markit PMIs suggest the US economy is likely growing at just 1.5%, while trend payrolls growth has probably decelerated below 100k.
Of course, central banks are easing and fiscal policy is starting to ramp up (e.g., India’s big corporate tax cuts), albeit with some holdouts, Germany being the most recalcitrant. The following two visuals make the point quite effectively:
Still, Barclays thinks next year isn’t likely to be better than 2019. Specifically, the bank suggests parallels with the rebound off the 2015/2016 mini-recession are somewhat spurious.
“Investors who keep drawing parallels with the 2015 economic slowdown should note that aggressive Chinese stimulus in 2015 set the stage for a global recovery, starting in 2016, that culminated in a very strong 2017”, Rajadhyaksha reminds you, on the way to cautioning that China may “remain far more circumspect about adding new fiscal stimulus this time”.
As for the US, Barclays notes the obvious, which is that the fiscal impulse has now waned, while “Europe’s policy cupboard [is] mostly bare”.
Throw in the bank’s projection that “the drag from tariffs [has] yet to fully hit trade”, and you’re left to wonder “Where will upside growth surprises come from?”
And one to which there aren’t any good answers.