WASHINGTON: How fragile is the global economy? The US-China trade war is weakening businesses in both countries, Germany’s economy shrank in the second quarter, and Britain appears headed for a disruptive exit from the European Union this fall.
Those trends have hammered American manufacturers and caused global financial markets to plunge on fears that the world’s largest economy could slip into a recession.
Yet most analysts expect the US economy to power through the rough patch, at least in the coming months, on the strength of solid consumer spending and a resilient job market.
The US stock market plummeted earlier this week when the bond market, spooked by the global turmoil, sent a possible early warning sign of a recession ahead: The yield on the benchmark 10-year Treasury note slipped briefly below two-year Treasury yields.
That is an unusual shift that indicates investors expect the US economy to expand much more slowly in the coming months.
The shift has preceded at least the last five US recessions, though as much as two years can pass before a recession actually hits.
Still, most economists were buoyed by a robust retail sales report Thursday that suggested that American consumers aren’t fretting about bond yields. Sales at US stores and restaurants jumped in July by the most in four months. Online sales soared to their best showing since January. Spending at restaurants is a sign of confidence, given that most people eat out when they feel they have money to spare.
“With the rest of the world sliding into the abyss, the July retail sales figures show a resurgent US consumer riding to the rescue,” said Michael Pearce, senior US economist at Capital Economics, a consulting firm.
If anything, it’s the Trump administration’s trade war that has been harming the world economy. President Donald Trump has imposed 25 per cent tariffs on $250 billion of imports from China, along with duties on most steel and aluminium imports. He has also threatened to hit the remaining $300bn worth of Chinese imports with 10pc tariffs, though he has delayed that increase on about half of those items to avoid raising prices for US holiday shoppers.
Still, the tariffs and Beijing’s retaliatory duties on $110bn of US goods have dragged down China’s growth to its slowest pace in 26 years.
Published in Dawn, August 17th, 2019