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October 1, 2019 11:00 AM, EDT

World Economy Signals Manufacturing Crisis

Manufacturing Taylor Weidman/Bloomberg News

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The global economy flashed clearer warning signs Oct. 1 as a wave of data showed manufacturing stuck in a slump, exports falling and sentiment sliding.

With a trade war between the U.S. and China still raging, industry executives from Japan and Russia to Germany and Italy complained of contracting business, while the World Trade Organization cut its forecast for commerce to the lowest in a decade.

The specter of deflation resurfaced as South Korea, a bellwether for international trade, reported a drop in consumer prices, and the Reserve Bank of Australia cut its interest rate to a record low and said it may ease further.

Although a measure of Chinese manufacturing improved, the overall tone was of the world economy failing to rebound from the slowdown that has plagued it for the whole of this year amid the mounting trade tensions and rising Brexit risks. That leaves the U.S. and China and also the U.K. and European Union under pressure to resolve their differences, with central bankers and governments also having to find ways to support demand.

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“There can be few precedents since the 1930s of global growth prospects being affected so significantly by trade policy disruptions,” Fitch Ratings Ltd. Chief Economist Brian Coulton said.

UBS Group AG economists reckon global growth is tracking just 2.3% at the moment, almost a percentage point less than the start of the third quarter. Those at Danske Bank are warning there is a 30% chance of a global recession in the next two years.

While trade tensions are part of the story, there’s also industry-specific issues — autos in Germany, semiconductors in South Korea — adding to the hurdles.

German car-parts giant Continental AG last month laid out a sweeping restructuring plan that could affect as many as 20,000 jobs worldwide. Japan’s Kawasaki Heavy Industries cut its forecasts, citing sales to chipmakers.

Central banks around the world are fighting the slowdown with new interest-rate cuts and monetary stimulus. But they are also ramping up calls on governments to jump in, too, with fiscal measures, saying they can’t do all the heavy lifting.

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