| Some signs of hope: For the second time this year, some key economic and financial indicators are signalling that global trade and manufacturing could hit the bottom soon. If Donald Trump does not upset the global economy by escalating trade tensions once again, as he did in May, the worst may soon be over. |
| Equities up, growth down: Looking through the current economic downturn, equity markets have played the theme of a potential upswing to come for much of this year already. However, financial markets are fickle. They may – or may not – flag economic turning points well in advance. But if genuine economic data such as business expectations start to confirm the market message, we can usually be reasonably confident that better times are ahead again. We detect first signs that this is happening. |
| Closing the expectations gap: Hard economic data continue to soften. However, many data points such as US and Eurozone Q3 GDP are no longer surprising to the downside. Expectations have adjusted to reality. If households and companies no longer need to scale back their spending plans further, output growth can stabilise. |
| Bellwether Germany? Trade wars, Brexit and the Chinese slowdown have hit the highly cyclical and export-orientated German economy far harder than almost all other advanced countries. Nonetheless, business expectations in the German manufacturing sector stabilised over the summer before edging up slightly to a four-month high in October (see Chart 1). |
| Progress report: In this report, we look at key data that suggest a potential turning point is ahead. All in all, the evidence is still very tentative. |
| Political risks still loom large: If the US-Chinese trade escalates again, or if the US starts a new trade war against the only other economy of almost equal size, the EU, it could all still go wrong. But in the absence of such new political shocks, chances are that the global downturn could peter out in early 2020 and make way for a modest upturn thereafter. Fortunately, some recent political news has been less bad than before, suggesting that political risks may have peaked for now. |
| Potential impact: A new upturn would benefit in particular the trade-dependent economies of the world such as the Eurozone and their asset markets including cyclical equities and the euro. A reduced appetite for safe haven assets would likely show up in a rotation towards riskier sectors and some rebound in bond yields. |
Holger Schmieding
Chief Economist
+44 20 3207 7889
holger. schmieding@ berenberg. com
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