2019: a year of uncertainty

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December 19th, 2019

Global economic activity stepped down a notch in 2019, a year marked by the general slowdown of the economy. Following two years of high growth in which the global economy grew by 3.8% (2017) and 3.6% (2018), the data suggest a significant reduction in the pace of growth down to levels of around 3% for 2019 as a whole (specifically, 2.9% according to our estimates). The main culprit of this slowdown of the international economy is uncertainty, the key word of 2019. Without a doubt, uncertainty has risen primarily because of the trade tensions between the US and China, the political complexities of the EU (Italy, Brexit) and the global geopolitical situation (with the unrest in Hong Kong, Iran and Chile, among others). As such, an economy that was already affected by the maturity of the business cycle (and in which, therefore, a certain slowdown was to be expected) has also suffered the impact of uncertainty. This, in turn, has weighed down on foreign trade, investment and consumption: in short, economic growth itself. Despite the fact that the risks remain, at CaixaBank Research we expect that these pressures will recede in 2020 and 2021 and that the global economy will recover, although it will probably maintain lower growth rates than in recent years.

The trade tensions between the US and China intensified in 2019 following the temporary truce agreed between Washington and Beijing in December 2018. After applying tariff hikes in June and September, the US now has high tariffs on approximately 360 billion dollars of Chinese imports. China, in turn, has implemented them on some 60 billion dollars of US imports. These protectionist measures, and in particular the uncertainty over the future relationship between the two countries, can explain much of the decline in trade flows seen during 2019 (a decline which, on the other hand, has not occurred since the global financial crisis of 2008). Ironically, although the main trade conflict is between the US and China, for the time being it is other countries that appear to be taking the brunt of the heightened uncertainty, such as those in the EU, which are more sensitive to changes in global confidence and are more integrated internationally.

The manufacturing sector in advanced countries has suffered most notably due to the global uncertainty, but it has also been affected by a shock in the automotive industry (see the Focus «The difficulties of the global manufacturing sector» in this same Monthly Report). For the past six months, the global manufacturing PMI has stood below 50 points, the threshold that separates the expansive and contractive territories. Of particular note is the difference between emerging countries, where the sector bottomed out in mid-2019 and is already showing signs of a recovery (with a PMI of 51 in October), and advanced countries, where the manufacturing PMI remains well below 50 points (48.6 in October). Thus, these numbers point towards moderate growth in Q4 2019.


Europe has been the main victim of the deteriorating global environment in 2019, due to its openness to trade and its integration into the global economy. In November, the European Commission revised its growth forecasts for 2019 down in 11 of the 19 countries of the euro area, and in 17 countries for 2020. The underlying situation is one of a general slowdown in the European economy in 2019, with no signs of showing greater momentum in the coming quarters. Among the major countries, the most significant downward revisions were in Germany (–0.1 pp in 2019 and –0.5 pps in 2020) and Spain (–0.2 pps and –0.4 pps). According to the Commission, the main reason for this change is that, despite the fact that the risks of recession remain low, the factors that are hindering European growth will persist. Most notably, these include moderate growth in the global economy, the weakness of international trade and the problems in the global industrial sector.

GDP growth in the euro area remained at moderate levels in Q3 2019. In particular, GDP grew by 1.2% year-on-year (0.2% quarter-on-quarter), almost the same as the figure for the previous quarter, confirming that the European economy has got stuck at low growth rates. Nevertheless, domestic demand continues to support economic activity, with an impressive 2.2-pp contribution to year-on-year growth driven by consumption and investment. The decrease in the unemployment rate in October (down to 7.5%) tells us that the labour market has, for now, been resistant to the decline in activity that occurred in 2019. By country, growth has been particularly moderate in Italy (0.3% year-on-year and 0.1% quarter-on-quarter) and Germany (0.5% year-on-year and 0.1% quarter-on-quarter). The latter narrowly avoided a technical recession, defined as two consecutive quarters of negative growth. As for Q4, the behaviour of the economic activity indicators at the beginning of the quarter and the economic sentiment index for the euro area (ESI) point towards a similar growth to that of Q3.

Germany, the focus of various shocks. The German economy, which is very open and dependent on the industrial sector, has been particularly affected by the factors behind the slowdown in the global economy: the trade tensions between the US and China, the uncertainty surrounding Brexit and the problems in industry and in the automotive sector in particular. The tensions between the EU and the US also played a role, although the decision on whether to increase tariffs on imports of European cars will most likely be postponed until 2020. Signs that this uncertainty is affecting the German economy include the fact that some producers of German cars have already announced that they would increase their production in the US. The services sector, meanwhile, remains strong, with a PMI index above the 50-point threshold (51.3 in November). Nevertheless, there is still a risk that its ties with the industrial sector could end up holding it back more than at present. All in all, the latest economic activity indicators point towards a growth in Q4 similar to that of Q3 (0.1% quarter-on-quarter), thus suggesting that the German economy will grow by around 0.6% in 2019 (1.6% in 2018).


The US economy continues to grow at a steady pace. The GDP of the US remained strong in Q3, in spite of the trade tensions surrounding the economy. In particular, US economic activity grew by 0.5% quarter-on-quarter (2.1% year-on-year), slightly above the forecasts of analysts’ consensus and those of CaixaBank Research. This is a similar rate of growth to that of the previous quarter and remains high, especially taking into account the protectionist measures and the trade tensions that have surrounded the country in recent times. However, for Q4 the available indicators suggest a somewhat more restrained growth. Specifically, industrial production fell by 1.1% in October (–0.1% in September) and retail sales registered a slowdown (3.7% in October compared to 4.5% in September). All in all, the strength of private consumption, together with the healthy performance of the labour market, points to a certain inertia in the US economy’s growth which should continue over the coming quarters.

Business investment, on the other hand, contracted again for the second consecutive quarter, and shows a marked slowdown in 2019. In Q3, business investment fell by 0.1% compared to the previous quarter, driven by the fall in investment in structures and capital goods. However, this drop is qualified by the base effect of the strong performance of investment in 2018, boosted by the tax reform of the Trump Administration (for more details, see the Focus «Good outlook for the US economy, with the permission of investment» in this same Monthly Report).


The pace of economic activity continues to yield in the emerging markets. Despite the fact that the manufacturing sector is already recovering in the bloc of emerging countries (as attested by the trend in the manufacturing PMI discussed earlier), the synthetic economic activity indicator developed for these countries by the Institute of International Finance (IIF) once again fell in October. As such, the brief recovery in the pace of economic activity registered in the first part of 2019 may have been cut short. Besides idiosyncratic factors, the emerging markets are facing a complex set of circumstances, with worsening expectations, real data on the decline and financial pressure in response to the surge or persistence of various «headwinds» that affect them (in particular, geopolitical uncertainty, the slowdown in global trade and the decline in the price of many commodities).

The slowdown in India is becoming more acute. In Q3, the Indian economy grew by 4.5% year-on-year (5.0% in Q2), a figure that is lower than expected and which marks the sixth consecutive quarter with a slowdown. The notable slowdown in investment and the loss of buoyancy in exports, affected by a more adverse global environment, were the main factors behind the decline in the Asian country’s pace of economic activity.