CHAPTER GLOBAL PROSPECTS AEN EELS Subdued Momentum, Weak Trade and Industrial Production (Over the past yea, global growth bas fallen sharply. ‘Among advanced economies, the weakening has besn broad based, affecting major economies (the United States and especially the euro area) and smaller Asian advanced economics. The slowdown in activity has been even mote pronounced across emerging market and developing economies, including Brazil, China, India, Mexico, and Russia, a well as afew economies suffering macroeconomic and financial sess. ‘One common feature of the weakening in growth ‘momentum over the past 12 months has been a geo sraphicaly broad-based, notable slowdown in indus- tral ouput driven by multiple and interelated factors (Figure 1.1, panel I): + A sharp downturn in car production and sale, which so global weice purchases decline by 3 percent in 2018 (Bax 1.1). The automobile industey slump reflects both supply disruprions and demand Influences—a drop in demand afer the expiration of ‘ax incentives in China: production lines adjusting 0 comply with new emission standards in the euro area {especially Germany) and China; and possible preer- nce sifs as consumers adope a wait-and-sce atude ‘with technology and emission standards changing, rapidly in many countries, as well as evolving car transportation and sharing options 1 Weok busines confidence ami growing tensions between ‘the United States and China om trade and technology. ‘As the reach of US tarifs and realiation by trad- ing partners has steadily broadened since January 2018, the cos of some incerrediate inputs has risen, and uncertainty about furure rade relation- ships has ratcheted up. Manufacaring, firms have become more cautious about long-range spending, and have held back on equipment and machinery purchases. This trend is most evident in che uade- and global-value-chain-exposed economies of east ‘Asia In Germany and Japan, industrial production ‘was recently lower than one year ago, while ies growth slowed considerably in China and the United Kingdom and, to some extents in the United States (Figure 1.1, pane 2) The weakness appeared partcu- larly pronounced in the production of capital goods. A slowdown in demand in China, driven by needed regulatory efforts to rein im debt and exacerbated by the macroeconomic consequences of increared sade tensions With the slowdown in industrial production, trade growth has come to a near stands. Inthe fe half of 2019, the volume of global wade stod just 1 percent above is value one year ago—the slowest pace of groweh for any sixmonth period since 2012. From geographical standpoint, major contiburrs to the weakening in global import were China and east Asa (both advanced and emerging) and emerging sarket economies under sess (Figure 1.2). Down ‘uns in global trade ae related to reduced investment spending—as was the case, for instance, in 2015-16. Investment is intensive in inermediate and capital goods cht are heavily waded. Global investmenc did indeed slow (Fgute 1.3), in line with reduced import growth, reflecting cyclical fctors, the steep downcurn in investment in stressed economies, and the impact oF inreaed trade tensions on busines sentiment in the manufacturing sector. Another coneributor tothe slowdown in global ade has been the dewentuen in car production and sales, which is reflected in a slowdown in purchases of consumer ducables (Figute 1.4). In China—the country withthe highes investment spending in the world—the slowdown in inves ‘ment in 2019 has been much more limited than che slowdown in imports, similar to what happened in 2015-16. Factors contributing to impore weakness {beyond domestic capital spending) include reduced export growth, which is intensive in impor, and a decine in demand for crs (Box 1-1 and technology products, such as smartphones. The front-loading of exports, before rrifs were imposed in late 2018, likely also played roe by bringing forward demand for Jmporc components ‘Global emicondacror sles decid in 2078, in par eed wo seeing mate uration in smartphones and Fer launches of row ch produc more beady (ECB 2019, Interional Monetary Fn Oe 2019 '