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Global economy risks stalling as China, Germany juggernauts slow: Report

The latest data suggest that key parts of the upbeat case for a global pickup aren't working out as hoped

Economy, market

Photo: Bloomberg

By Enda Curran

The world economy is showing new signs of slowing down, as China’s post-Covid rebound fades and Germany’s struggling industrial sector threatens to pull Europe’s powerhouse into recession. 
Those weaknesses are emerging as the still-resilient US economy comes under pressure from the worst banking scare since the financial crisis, as well as a debt-ceiling standoff that threatens default. Treasury Secretary Janet Yellen warned on Tuesday that “time is running out” to avert catastrophe. 

The latest data suggest that key parts of the upbeat case for a global pickup aren’t working out as hoped. China’s reopening, after an abrupt pivot away from Covid Zero policies, has run out of steam — and a mild winter in Europe hasn’t been enough to revive Germany’s industrial base. 

“The growth optimism from the start of the year has clearly given way for more sense of reality. Or simply disappointment,” according to Carsten Brzeski, global head of macro at ING. “China and Europe are already losing momentum again and with everything going on in the US, the second half of the year doesn’t look any better.”

What Bloomberg Economics Says...
“A mixed bag of economic data showed surprise weakness in China and Europe’s industrial power house Germany, but resilience in the US. Our view is that the bad news on China’s sputtering recovery will have some staying power. With a lot of Fed hikes in the system, bank failures adding to credit tightening, and risks from debt ceiling talks in DC, the US growth story may not.”

—Tom Orlik, chief economist

Chinese data out Tuesday showed industrial output, retail sales and fixed investment grew at a much slower pace than expected in April. The unemployment rate for young people jumped to a record high of 20.4%.

‘Save the Day’
The figures confirm that China’s reopening isn’t lifting global demand the way many had anticipated, said Hao Hong, chief economist at Grow Investment Group. Ongoing weakness in the property sector, and in the order books of China’s exporters, will do little to lift sentiment. “We need the Chinese consumer to do well to save the day,” Hong said.


In Germany, investors’ confidence waned for a third month, reigniting fears of a recession. The ZEW institute’s gauge of expectations fell to -10.7 in May from 4.1 in April — the first sub-zero reading of 2023. Even before that, an unexpectedly big drop in in industrial output had raised concern that Europe’s top economy may have already fallen into a winter slump. 

The International Monetary Fund trimmed its global growth projections last month, forecasting an expansion of 2.8% this year and 3% in 2024. On Tuesday, the Fund warned that tight monetary policy and the adjustment to higher energy prices are weighing on Germany. It expects economic growth “to stay near zero in 2023” before gradually strengthening in the following three years. 


While the world’s largest economy continues to defy predictions of a downturn — US retail sales increased in April, suggesting consumer spending is holding up — headwinds are building. The failure of several regional banks is making access to credit harder for smaller businesses and households. Economist surveys point to a 65% chance of a recession in the coming 12 months.

‘Difficult Year’
If the world economy does falter, central banks can deliver some relief, according to Mark Zandi, chief economist at Moody’s Analytics. Most monetary authorities are near the end of their tightening cycles amid signs inflation has peaked, he said — while strong labor markets and household finances will also help put a floor under growth.

“It will be a difficult year from the global economy,” Zandi said. “But with some reasonably good policymaking by central banks, it should skirt recession.” 

Investors are already fretting about the outlook, with sentiment among fund managers the most bearish this year according to Bank of America Corp.’s latest survey. 

Traders are betting that a slowdown will force central banks, including the Federal Reserve, to lower interest rates later this year. Swaps markets point to more than 50 basis points of cuts by December in the Fed’s benchmark rate, which is now in a range of 5% to 5.25%.

There might be more gloomy economic news to come, with warnings from manufacturers pointing to pressures that are still building, said Janet Mui, head of market analysis at Brewin Dolphin.

“Companies are reporting that orders are slowing,” she said. “The slowing growth in China export numbers is very telling of global demand.” 

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First Published: May 16 2023 | 11:47 PM IST

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