Last week, the International Monetary Fund released its latest world economic outlook projections, which forecast global output will decelerate from 3.6% growth in 2018 to 3.2% growth in 2019, before picking back up to 3.5% growth in 2020.
[The report notes that “The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences.]
According to the IMF, “Global growth remains subdued… Global technology supply chains were threatened by the prospect of US sanctions, Brexit-related uncertainty continued, and rising geopolitical tensions roiled energy prices… Investment and demand for consumer durables have been subdued across advanced and emerging market economies as firms and households continue to hold back on long-range spending.”
The latest U.S. GDP report released last week appears to confirm that the U.S. economic expansion slowed in the second quarter, although the numbers are still subject to revision and actually came in somewhat better than expected. According to the Bureau of Economic Analysis, real (adjusted for inflation) GDP in the U.S. rose at an annualized rate of 2.1% in the second quarter, down from 3.1% growth in Q1. According to the BEA, “The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in {Personal Consumption Expenditures} and federal government spending.” The robust 4.3% growth in personal spending was the most encouraging part of the report, while the sharp reversal (-5.5%) in gross private domestic investment, including a 10.6% drop in investment in structures, reflects a growing concern about weaker business investment this year.
On a more encouraging note, U.S. durable goods orders reportedly rose 2.0% in June, exceeding even the high end of consensus expectations. Econoday analysts point out that new production equipment may be ramping up to meet latent unmet demand. Machinery orders were up 2.4 percent and core capital goods orders were up 1.9%, while transportation orders increased 3.8%. As a result, we may well see some upward revisions to the investment numbers referenced above in the GDP report.