Economic Data Foretells Dire Outlook for Global Economy
The global economy could be headed toward a severe economic slowdown. Investors beware.
If you look at the major hubs in the global economy, they all seem to be showing dismal economic data. This shouldn’t be taken lightly whatsoever.
Here are some insights:
In the U.S., manufacturing has been declining. In August, the Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) dropped to 49.9 from 50.4 in July. The August figure was the lowest it has been in 119 months. (Source: “IHS Markit Flash U.S. PMI,” IHS Markit Ltd, August 22, 2019.)
A reading below 50 for the Flash U.S. Manufacturing PMI means there’s a contraction in manufacturing.
Looking beyond the U.S., Europe has also making a very solid case for a global economic slowdown being on the horizon. Not too long ago, Germany reported a decline in gross domestic product (GDP) in the second quarter of 2019. According to Germany’s Federal Statistical Office, the German economy declined 0.1%. (Source: “Euro zone GDP slows in second-quarter as growth in Germany shrinks,” Reuters, August 14, 2019.)
Keep in mind, Germany is one of the biggest powerhouses in the eurozone, and it’s just one fiscal quarter away from being in a recession. If the German economy slows down, it’s pretty much a sign that the eurozone is in trouble.
Looking at emerging markets, things don’t seem great at all.
China, for example, is slowing down at a scary pace. Not too long ago, the Chinese economy was growing by about 10%. Now its growth rate is around six percent.
Don’t just stop there: other emerging-market countries have been struggling too. Their currencies have been volatile and their economies aren’t in a great shape. Take out a world map and point to a country. Big or small, chances are it has been reporting dismal economic data.
3 Things to Watch if Global Slowdown Becomes Reality
Dear reader, if you own stocks, you must watch what’s happening in the global economy.
Too often, investors forget that the entire global economy is interconnected. If the global economy is slowing down, no one is really safe.
In the case that a global economic slowdown persists, here are three things investors need to keep in mind:
- Oil prices are highly correlated with how the world economy is doing. If there’s slowdown, demand for oil will decline. Right now, we have a lot of supply in the oil market. A global slowdown could cause an oil price crash. But the sell-off may not just remain at oil. We could see industrial metals come down in price as well.
- There are a lot of companies that have global operations. What do you think will happen to their revenue and earnings if the global economy goes through a rough patch? We could see their revenue and earnings fall, and this could lead to a sell-off in the stock market.
- If a global slowdown persists, expect central banks to get very reactive. The last thing they would want on their hands is a financial crisis like the one we saw in 2008–2009. Expect them to lower interest rates, print money, or even do something unorthodox.
I will end with this: if there’s a lot more noise about a global slowdown, things could get very volatile. So don’t get too complacent.