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

Nathan Chow

Strategist - China & Hong Kong

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No.