Macro Update: Trade war versus recovery

At the beginning of this year, the consensus expected a V-shaped recovery over the course of H2. All the latest economic data, however, paint a very different picture. Risks to growth are increasing and this trend was already in place before the trade war negotiations broke down so brutally. This give you a sense of what may be coming up over the next few quarters if the trade war gets nastier and the US decide to implement 25% tariffs on the remaining $300 billion of Chinese imports.

The current global macro picture is worrisome:

• No Asia rebound story
• A Chinese slowdown reminiscent of 2016
• Negative economic data starting to pop-up here and there in the US
• Europe not immune to trade war

The latest Asian export data published over the past three days confirm that there is something more than the Lunar New Year impact afoot in APAC. The April data indicate that the slowdown continued in major exporting countries and based on South Korea’s May exports, is even worsening. This is the clear consequence of both the trade war and lower growth momentum. So far, there is no winner from trade war as the contraction in exports is broad-based across Asia:

April Japanese exports in April came out at -2.4% year-on-year for fifth consecutive month of decline. Taiwanese exports for the same month were in contraction again, at -3.7% y/y. This is a better print than was expected by the market (-6.4%) but as we all know, one data point does not make a trend. Things are likely to deteriorate in May. The Ministry of Economic Affairs expect y/y exports to be between -7.6% and -10%. 

Thail exports for April were down 2.6% – the second straight month of decline, with exports having contracted in five of the last six months. South Korean exports over the first 20 days of May were down 11.7% y/y and exports to China collapsed to -15.9%. Looking at the semiconductor sector, which gives a broad view of the state of the global economy, things are even worse with exports down 33.0% versus 13.5% in April.

Looking at China’s data, the evolution reminds us a lot of that of 2016 – another year of soft growth and exports. The comparison is interesting as it suggests that the outlook is not as bad as many believe. Retail sales and auto sales are much weaker this time, pointing to weak domestic demand, but industrial production, capacity utilisation and confidence indicators are better. Concerning exports, the trend is negative but no worse than in 2016.