Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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Chart of the Week: OECD private sector confidence
Christopher Dembik
Head of Macroeconomic Research
Summary: In today’s edition we focus on the latest OECD private sector confidence, which is still in negative territory in May. However, we observe a divergent trend between the manufacturing sector and the consumer sector that is likely to increase in coming months.
Manufacturing sector confidence is at its lowest level since the great financial crisis, at minus 1.17%, while consumer confidence is rebounding at minus 0.17%. Risks related to the long-lasting trade war and its negative impact on global trade are penalising export-oriented industries, especially in Germany where we also see a decoupling trend between the services sector, supported by resilient domestic demand, and the manufacturing sector that is hurt by contraction in export growth to China and Turkey since the end of 2018.
Looking at the latest Asian export data, that serve as proxy of global trade, we doubt that there will be any growth rebound in the second half of 2019.
By contrast, an improvement in consumer confidence in OECD countries is explained by higher wages, notably in the euro area and Germany (respectively +2.5% and +3.1% YoY in Q1 2019), low inflation and fiscal incentives. It should keep going upwards in coming months as we expect further fiscal stimulus by the end of the year in Europe (infrastructure and demand oriented) and probably more open discussion about reforming the EU fiscal framework and the ceiling of 3% for budget deficit once the new EU Parliament and EU Commission are in place.
Looking at the latest Asian export data, that serve as proxy of global trade, we doubt that there will be any growth rebound in the second half of 2019.
By contrast, an improvement in consumer confidence in OECD countries is explained by higher wages, notably in the euro area and Germany (respectively +2.5% and +3.1% YoY in Q1 2019), low inflation and fiscal incentives. It should keep going upwards in coming months as we expect further fiscal stimulus by the end of the year in Europe (infrastructure and demand oriented) and probably more open discussion about reforming the EU fiscal framework and the ceiling of 3% for budget deficit once the new EU Parliament and EU Commission are in place.
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