Esty Dwek (Natixis) | Ongoing weakness across manufacturing and trade shouldn’t be a surprise, but service sectors continue to hold up, even showing a small rebound in June. Overall, we expect slower but stable growth around trend levels for the major economies.
Despite the recent truce, uncertainty around the US-China trade dispute is likely to continue to weigh on sentiment, adding to risks of a slowdown. Nonetheless, we do not see data pointing to a recession, for now. US Q2 data is pointing to growth around 2-2.5%, and European data will probably also be weaker than Q1 but still around 1% (annualized). Chinese data is showing a similar trend, with policymakers very clear on their intent to support the economy in light of trade tensions.
The G20 in Osaka saw a new truce in the US-China trade standoff, but we see little reason for a swift resolution given little political cost. The closer we get to election time in the US, the more President Trump will likely worry about growth and therefore pressure for a deal. For now, the US will not impose 25% tariffs on the remaining Chinese imports, China will buy more agricultural products from the US, and the US will back off from Huawei.
For now, despite the threat of additional tariffs on Europe because of the Airbus conflict, Europe has escaped Trump’s ire, though the Old Continent remains stuck with the consequences of the US-China dispute, with little power to change the situation. One thing to note is that while a truce is positive, we are still in a world of higher tariffs and higher uncertainty, as demonstrated by the May escalation in the trade dispute.