Tue, Nov 06, 2018 - Page 10 News List

World economy ‘past the best,’ Goldman Sachs says


A tugboat sails past idle cranes in Tanjung Priok port in Jakarta yesterday.

Photo: Reuters

Global economic growth should be somewhat softer next year as tighter financial conditions bite.

That is the view of economists at Goldman Sachs Group Inc led by Jan Hatzius, who said that fiscal policy is emerging as a key support for growth as other governments join the US in pulling fiscal levers.

“Looking ahead to 2019, we expect a similar contribution of fiscal stimulus to global growth as in 2018, but the composition shifts from being US-centric to being more broadly based across developing markets and emerging markets,” the analysts wrote in a note.

While that would provide some cushioning for the global economy, it is hard to map out an absolute path for the world’s GDP growth next year.

“An increase in the price of oil, for example, could present a downside risk; and on the upside, continued slack and a long-awaited improvement in productivity could leave economies with more room to grow,” the economists wrote. “That said, our analysis suggests that growth in 2019 should be somewhat softer than it has been in 2018.”

Goldman’s preliminary global current activity indicator last month slipped to 3.7 percent from just above 4 percent mid-year and about 5 percent at the start of this year.

The shift is being led by China, where the economy’s weakest performance since 2009 is set to worsen unless a peace can be struck in the trade war with the US.

Factory readings from Asia already show a fallout, with Taiwan, Thailand and Malaysia slipping into contraction territory.

The eurozone too is losing momentum, expanding in the third quarter at half the pace of the prior three months as Italy and Germany stagnated.

It is a marked turnaround from April, when the IMF said the world was enjoying the most united upswing since 2010.

The mood changed last month when the IMF cut its global outlook for the first time in two years and said growth had plateaued.

There are other signs the peak has passed for the global economy.

IHS Markit’s purchasing managers’ indices (PMIs) for China and the eurozone last month retreated to drive the overall reading to an almost two-year low, while the US gauge was little changed.

Most countries have seen their PMIs decline over the past three months.

“The latest data strongly support the view that the best days in the post-2008 financial crisis growth cycle have been seen,” said Alan Ruskin, global cohead of foreign-exchange research at Deutsche Bank AG.

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