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Economic Snapshots and domestic demand leads global growth in Q2 (2018/08/29)


Economic Snapshot for the G7 Countries &

Robust domestic demand leads global growth in Q2



Date: August 29, 2018







Robust domestic demand leads global growth in Q2



Global growth remained strong in the second quarter despite rising trade tensions, higher oil pricesand increased volatility in the financial markets. Tightening labor markets, robust investment in key global economies and still-accommodative financial conditions propelled economic activity in Q2. Moreover, despite signs of having peaked in Q1, global trade remained relatively robust in Q2. A comprehensive GDP growth estimate for the global economy put year-on-year growth at 3.4% in Q2. While the print was a notch below last month’s preliminary estimate of a 3.5% rise, it matched the result from the previous period.




Among the world’s largest economies, the U.S. continued to show enviable momentum in Q2, with quarter-on-quarter seasonally-adjusted annualized growth posting the strongest reading in nearly four years. Household spending was behind Q2’s solid performance due to an ever-tightening labor market and the effects of tax cuts. Non-residential investment continued to be another of the main growth engines on the back of lower corporate taxes. Although, surprisingly, net exports contributed notably to overall growth in Q2, it mostly reflected a surge in exports ahead of retaliatory tariffs from China, which came into effect on 6 July. Front-loaded shipments ahead of trade-punitive measures between China and the U.S. were also seen in parts of Asia.




In this regard, the U.S. slapped tariffs on USD 16 billion of Chinese imports on 23 August and China retaliated immediately with measures of the same magnitude. As a result, the bilateral trade affected by Chinese and U.S. levies amounts to USD 100 billion. The second round of tariffs came into force one day after both countries met for a two-day meeting in Washington to talk about trade issues. Although the meeting was the first major negotiation between the two countries since June, it ended with no major progress on how to resolve the bilateral trade war. Meanwhile, the U.S. is moving forward with its plans to impose tariffs on an additional USD 200 billion of Chinese imports. On the flip side, on 27 August, U.S. President Donald Trump announced that Mexico and the United States had reached a preliminary deal to revamp parts of the North American Free Trade Agreement (NAFTA), which includes the agreement that any automobile sold in Mexico and the United States will require 75% of the car’s value to be manufactured in both countries, up from the current NAFTA level of 62.5%. The key pending questions are whether Canada will join the agreement and whether Mexican President-elect Andrés Manuel López Obrador, who will assume office on 1 December, will fully endorse the terms of the accord.




Positive economic news also came from Japan and the United Kingdom. In Japan, the economy returned to growth in SAAR terms in Q2 following a short-lived contraction in Q1. Strong wage growth, reflecting a tightening labor market and summer bonuses, boosted consumer spending. Moreover, investment expanded a healthy rate partially due to works related to the 2020 Tokyo Olympics. In the United Kingdom, economic activity accelerated in Q2 as warm weather supported consumer spending and likely boosted the construction sector. That said, Brexit uncertainty continues to weigh on the UK’s economic outlook.




On the flip side, economic growth in the Euro area remained soft in Q2, expanding at the same rate as in Q1 in quarter-on-quarter terms. Although the release did not include a breakdown by components, higher inflation and subdued wage growth likely dented consumer spending.



GDP Economic Growth in Main Countries

https://infogram.com/g7-july-2018-1h0n25gpvwlz6pe





Author: Ricard Torné

Head of Economic Research


To be continued.......


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