Major economies are seen on a fragile recovery track, accommodating to trade wars

Stable growth momentum anticipated in Euro area as a whole, and France and Italy in particular in the next six to nine months, according to the Organization of Economic Cooperation and Development calculations. Composite leading indicators, reviewed by OECD, continue to point to stable growth momentum in Japan and Canada. Signs of stabilizing growth are also emerging in the United States, Germany and the United Kingdom.

Germany’s economy recovery track was supported by exports that rose unexpectedly by 1.2% in October, with demand from outside Europe offering a boost to the continent’s largest economy. Positive export trend waned risks of fourth quarter contraction of European largest economy.

World’s second largest economy China continue to maintain stable growth momentum for the industrial sector, as well as Russia and Brazil.

OECD earlier trimmed its outlook for global growth to 2.9% in 2020 from 3.0% (2.9% in 2019 unchanged). The Organization projected world trade slumping to 1.2% in 2019 and 1.6% in 2020, down from 2.1% and 3.1% respectively from previous estimations in May 2019.

Although some signs of recovery are emerging, it is too early to judge the growth of the world economy could be sustainable. Trade tensions worldwide are still disrupting supply chains but have not forced business to pull back to US from China, according to European companies operating in the world’s second-largest economy. Large companies are adjusting its business partially by relocating production to nearby emerging economies to avoid US tariffs. Smaller European and American entities “passing costs along, eating costs themselves or changing suppliers,” said in report by European Union Chamber of commerce in China upon survey of 174 respondents.

The trade group, representing over 1,600 European companies, said that despite some companies leaving China, about an equal number of them are raising their stake there by moving their supply chains onshore to avoid tariffs altogether. About 6% of companies increased their investments in China, there were only 4% claiming increase in investments in January this year.

Nevertheless, China is not immune to US tariff barrier. Chinese exports dropped in November 2019 by 1.1% compared to year earlier according to customs statistics despite 1% rise expectations. 

It may be said a new world trade regime is under construction where US tariff barriers will not make a paramount importance for Chinese economy growth in the long run. The second world largest economy is seeking ways to establish new China-led agreements on trade and investments. China’s President Xi Jinping told new European Council President Charles Michel that Beijing hopes to reach an investment agreement with the European Union as soon as possible. Regional Comprehensive Economic Partnership (RCEP) led by China announced early November this year minor outstanding matters to be finalized in coming months and the trade deal to be signed early 2020. Under RCEP umbrella 16 nation comprises 34% of world’s total GDP, a huge rapidly growing Asian region.

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