Global business confidence dips to multi-year low: Worrisome but hardly shocking

By | June 7, 2019

Business confidence dipped to its lowest level since future output data were first collected in July 2012 (Mint file)

The global economy continues to lose steam with the rate of expansion easing to a near three-year low in May. The JP Morgan Global Composite Output Index, published by IHS Markit, fell from 52.1 in April to 51.2 in May. Output growth at service providers was the weakest since August 2016, while the trend in manufacturing production was near stagnation.

As a result, business confidence dipped to its lowest level since future output data were first collected in July 2012. The future output index, a gauge of business outlook for the next 12 months, fell to 59.7 in May. Optimism fell in all three manufacturing sub-sectors covered by the survey (consumer, intermediate and investment goods) and at business services providers.

The slowdown in global growth and its after-effects on business optimism is a concern for sure. As per the survey, demand dynamics stuttered in both sectors, with manufacturing particularly hard hit by the effect of rising global trade tensions on international trade flows.

Recently, the International Monetary Fund (IMF) warned that the US-China tariffs, which have been implemented and proposed, could significantly damage global growth. “We estimate that the recently announced and envisaged US-China tariffs could subtract about 0.3% from global GDP in 2020, with more than half of the impact stemming from business confidence effects and negative financial market sentiment,” IMF’s managing director Christine Lagarde said in a blog on 5 June.

Overall, the IMF estimates that US-China tariffs—including those implemented last year—could reduce global GDP by 0.5% in 2020. This amounts to a loss of about $455 billion, larger than the size of South Africa’s economy, it said.

For 2020, the IMF is predicting 3.6% global growth, but warns of downside risks emanating from Britain’s exit from the European Union and slowdown in China. Clearly, businesses across the world have a lot to deal with.