No happy new year for global economy as manufacturing grinds to a halt

Analysis: Weak international trade is dragging down overall performance

JP Morgan's manufacturing index fell 50.3 in November, only marginally above the 50.0 waterline (Getty)

Hopes that 2020 would bring a happy new year for the global economy have already fizzled out. A closely watched figure has showed the world’s manufacturing sector all but ground to a halt in the final month of last year.

The index by JP Morgan fell to 50.1 in December, from 50.3 in November, to remain only marginally above the 50.0 waterline that separates expansion from contraction.

It blamed weak international trade flows that it said had continued to weigh on overall performance, with export orders posting another decline.

“The trend in new export orders will need to stage a revival if the upturn is to gather pace at the start of the new decade,” warned Olya Borichevska, JP Morgan's vice-president of global economic research.

The outlook for trade in the wake of Donald Trump’s tariff war is denting the outlook for economists at many of the world’s leading investment banks.

David Mann, global chief economist at Standard Chartered, said while he was positive about improving trade relationships between the US and China, any reversal would be a major drag on growth in 2020, which he forecasts at 3.3 per cent.

He said continued deglobalisation was one of what he called the “three Ds” — the others being debt and demographics. The demographic timebomb is well known — even if no one has adequately dealt with it — and the vast global debt burden of $188 trillion (£143 trillion) is unlikely to be an issue this year as low as interest rates remain low, as most forecasters expect.

But deglobalisation is proving to be a major threat to the global economy. Societe Generale (Soc Gen) has warned that financial globalisation is at a “tipping point”, highlighting the possibility of stagnation and even a slow decline in production links between economies.

Soc Gen, which forecasts global growth slowing from 3.2 per cent to 3.1 per cent between 2020 and 2021, says financial globalisation has slowed significantly. Annual cross-border capital flows have decreased by more than 60 per cent compared to the peak in 2007.

There is a similar problem with the trade in goods. According to the World Trade Organisation, its member states slapped protective measures on $747bn (£571bn) of goods in the year to October, a 27 per cent annual increase and the largest since 2012.

“Historically high levels of trade-restrictive measures are hurting growth, job creation and purchasing power around the world,” warned its director-general, Roberto Azevedo.

ING has warned that growth in goods trade volumes will have turned negative in 2019, shrinking by 0.2 per cent in 2019 with a rebound of just 0.9 per cent in 2020.

Joanna Konings, the bank's senior economist working on international trade issues, said the signing of a phase one deal between the US and China had helped avoid a further ramping up in trade tensions and some tariff increases, but added: “This has done little to take the brakes off world trade, leaving many tariffs in place and the most difficult issues still hanging over the negotiators’ heads in 2020.”

In October the IMF cuts its forecast for growth in 2020 from 3.5 per cent to 3.4 per cent. All eyes will be on its update later this month to whether it has an even more downbeat new year message for policymakers.