Monthly: Nowcasting the soft patch


Trade tensions and soft patches in global auto and electronics sectors have dragged down growth. But exports would likely bottom in 4Q, paving the way for a modest recovery of demand in early 2020.
Taimur Baig , Nathan Chow27 Sep 2019
  • US economic momentum has lately been in the stable-to-improving range of around 2% growth
  • But EU growth has been sliding toward 1% or below
  • Our Nowcast shows sub-6% growth for China in 2H19…
  • … with Singapore hovering around 1%.
Photo credit: AFP Photo


Economics: Nowcasting the soft patch

Some of the summer gloom has faded as a few extreme event risks (oil price and Iran, China-US tariff escalation, hard Brexit) did not materialise. While investment uncertainties remain heightened, the world’s largest economy keeps chugging along on the back of a tight labour market, resilient consumption, and rebounding housing. Consequently, US economic momentum has been in the stable-to-improving range of around 2% growth. Two rate cuts this year and no fiscal uncertainties (thanks to a deal done between the Democrats and Republicans) going into 2020 have helped.



The picture is however gloomy in the rest of the world. Economic growth in the European Union has been sliding toward 1% or below. Manufacturing and exports data out of Germany has been particularly poor, reflecting weak demand among three key trade partners, China, UK, and Turkey. In general, data surprises have been largely on the negative side through the continent.



Our Nowcast shows sub-6% growth for China in 2H19. Our model sees weakening industrial production, fixed asset investment, credit creation, and retail sales, with some pick-up in trade going into 4Q. Overall trend remains firmly downward, as per our analysis.



After reporting dismal data in recent months, India has generated some positive sentiment through a range of reforms announced in the areas of investment, export promotion, banking, non-bank financial sector, monetary tranmission, and corporate tax. Our GDP Nowcast model does not expect 3Q data to be any better, but a favourable base effect, along with a likely pick-up in auto sales and industrial production, should help growth rebound to over 6% in 4Q.



For Singapore, our model shows a mild recovery in 2H19, notwithstanding considerable headwinds being faced by exporters. Trade may bottom in 4Q, property market would likely see some recovery, and tourism should be picking up, reducing the risk of an economic contraction, in our view. Our Singapore GDP Nowcast is presently pegging 3Q growth at 1% and 4Q at 1.3%.



Trade tensions and soft patches in global auto and electronics sectors have dragged down growth. But exports would likely bottom in 4Q, paving the way for a modest recovery of demand in early 2020. Sustained US consumption and jobs growth, accommodating fiscal and monetary policy, easy liquidity, and some sort of a truce in trade wars could ensure this scenario.


To read the full report, click here to Download the PDF.

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia
taimurbaig@dbs.com



Nathan Chow

Strategist - China & Hong Kong
nathanchow@dbs.com
 

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