Perspectives

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EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
Editorial  
Uncertainty overshadows the cyclical environment  
The slowdown is spreading widely. Although it is reasonable to expect growth to normalise, several sources of uncertainty (fears of a  
trade war, Brexit, the US government shutdown, etc.) are acting as headwinds. China has already announced new measures, and in  
the United States, the Federal Reserve is insisting on its patience (concerning inflation) and flexibility when it comes to adapting  
monetary policy.  
Human nature is inclined to risk aversion: people are more sensitive  
to losses than to opportunity costs. A slowdown almost inevitably  
creates discomfort, due more to fears of what might happen than to  
the actual squeeze on earnings or revenues. Households postpone  
big-ticket purchases, companies slash their investment budgets,  
and banks become more wary about granting loans. In brief, slowing  
growth endogenously generates uncertainty, which only reinforces  
the sense of losing momentum.  
Confronted with the decline in these key indicators, the central  
banks have considerably softened their stance since the beginning  
of 2019. Federal Reserve chairman Jerome Powell insists on the  
Fed’s patience – since inflation remains under control  and on its  
flexibility, thereby sending an implicit but clear message that the Fed  
will not remain passive in the face of deteriorating prospects.  
Speaking before the European Parliament, Mario Draghi insisted  
that figures were weaker than expected and for a longer period than  
anticipated. It can no longer be taken for granted that the first key  
deposit rate increase will occur next fall. In China, the central bank  
has cut the banks’ reserve requirements, which means they will be  
able to step up the volume of lending.  
Against this backdrop, we must add the exogenous shocks arising  
from political decisions over the past several months: US-China  
trade tensions, American threats of protectionist measures aimed at  
the European automobile sector, the government shutdown in the  
United States, and in Europe, Brexit, where the situation remains  
totally opaque just two months before the date when the UK is set to  
leave the European Union.  
These positive signals do not really change the situation. The  
slowdown in the world economy is not due to financing troubles or  
excessively high real interest rates. It reflects doubts about the  
sustainability of the expansion, which are largely fed by growing  
uncertainties. In China, for example, this is why fiscal measures (tax  
cuts to stimulate spending and bond issues to finance infrastructure  
investment projects) should have more of an impact than monetary  
measures. From a more fundamental perspective, it is urgent to  
eliminate the sources of uncertainty to prevent a simple slowdown  
from festering into something more severe. Several signals recently  
suggest a slight improvement in US-China trade negotiations, since  
it is in the interest of both sides to prevent growth from contracting.  
As to Brexit, in contrast, it makes perfect sense to exclude the  
possibility of a no-deal Brexit given its extremely negative  
consequences. Yet fears of a hard Brexit persist and continue to act  
as a headwind for both the UK and the European Union.  
This picture must also be rounded out with specific factors  
pertaining to certain countries: new anti-pollution standards that are  
hitting the European automotive sector, notably in Germany and  
France; social unrest in France; and uncertainty over the Italian  
budget, which has had a lasting impact on interest rates even  
though an agreement was reached with Brussels for 2019. China’s  
efforts to get a grip on lending trends has also contributed to a  
structural slowdown. All of this has tended to drag down survey  
indicators in most countries since early 2018. More recently, growth  
figures are also trending downwards. Towards the end of the year,  
the slowdown even spread to the United States, which has long  
resisted economic headwinds thanks to an expansionist fiscal policy.  
William De Vijlder  
william.devijlder@bnpparibas.com  
Heatmap of manufacturing PMI  
Developed Markets  
Emerging countries  
WD  
NA  
Europe  
Asia-Oceania  
LATAM  
Eurasia  
Middle East & Africa  
Asia  
Feb-18 54.1 55.6 55.3 58.6 59.2 70.8 55.9 60.6 56.1 56.2 56.8 63.4 56.0 65.5 54.9 57.5 53.5 54.1 52.7 53.2 51.6 58.8 53.7 50.2 55.6 49.7 53.6 47.3 53.2 50.0 55.1 51.6 51.7 52.1 51.4 53.5  
Mar-18 53.3 55.7 55.6 56.6 58.0 61.0 53.7 58.2 55.0 54.1 55.1 61.5 54.8 60.3 54.8 63.1 53.2 53.1 53.0 53.4 52.4 57.3 53.7 50.6 51.8 49.2 54.7 46.5 52.8 46.7 54.8 51.0 50.6 51.0 50.7 51.6  
Apr-18 53.5 55.5 56.5 56.2 58.0 54.4 53.8 58.1 52.9 55.3 53.5 60.7 54.4 63.6 53.9 58.3 59.3 53.8 52.9 52.3 51.6 57.2 53.9 51.3 48.9 50.1 54.0 46.2 51.4 49.1 55.1 51.1 49.1 51.6 51.6 52.7  
May-18 53.1 56.2 56.4 55.5 57.3 48.2 54.4 56.9 54.2 55.4 52.7 60.3 53.4 62.4 54.2 57.5 54.4 52.8 52.7 50.7 51.0 56.5 53.3 49.8 46.4 49.2 49.6 46.4 53.2 49.4 56.5 51.1 47.8 51.2 51.7 53.9  
Jun-18 53.0 57.1 55.4 54.9 56.6 50.2 52.5 55.9 53.5 56.6 53.3 60.1 53.4 61.6 54.2 57.4 52.8 53.0 52.5 49.8 52.1 56.8 54.2 49.5 46.8 49.4 52.6 46.0 55.0 48.0 57.1 51.0 47.7 53.1 50.3 55.7  
Jul-18 52.8 56.9 55.3 55.1 56.8 55.9 53.3 56.9 53.5 56.3 51.5 58.0 52.9 61.9 53.9 52.0 51.3 52.3 52.3 50.5 52.1 55.4 52.9 48.1 49.0 50.3 58.0 45.4 54.9 49.9 55.8 50.8 48.2 52.3 50.5 54.9  
Aug-18 52.6 56.8 54.7 54.6 56.4 59.3 53.5 55.9 53.9 57.5 50.1 59.1 53.0 64.8 53.0 56.7 52.3 52.5 52.6 51.1 50.7 54.9 51.4 48.9 46.4 50.5 50.4 45.6 55.1 45.2 55.0 50.6 48.5 51.7 51.9 53.7  
Sep-18 52.2 54.8 55.6 53.2 55.0 53.6 52.5 53.7 53.6 56.3 50.0 59.8 51.4 59.7 53.8 59.0 52.1 52.5 52.4 50.9 51.7 53.4 50.5 50.0 42.7 48.7 50.0 45.8 53.4 44.6 55.3 50.0 47.9 52.2 50.7 51.5  
Oct-18 52.1 53.9 55.7 52.0 53.8 66.5 51.2 52.2 53.1 54.9 49.2 57.1 51.8 57.4 51.1 58.3 53.8 52.9 51.9 51.1 50.7 52.5 50.4 51.3 44.3 48.6 52.7 46.2 53.8 42.4 55.0 50.1 48.6 53.1 50.5 53.9  
Nov-18 52.0 54.9 55.3 51.8 54.9 57.9 50.8 51.8 54.0 55.4 48.6 56.1 52.6 57.7 53.6 51.3 53.7 52.2 51.5 52.7 49.7 51.8 49.5 52.6 44.7 49.2 53.7 46.7 55.2 49.5 55.8 50.2 47.1 54.0 50.4 56.5  
Dec-18 51.5 53.6 53.8 51.4 53.9 58.1 49.7 51.5 53.8 54.5 49.2 57.2 51.1 57.8 54.2 49.5 55.1 52.6 51.1 52.6 49.7 49.7 47.6 51.7 44.2 49.6  
46.2 54.5 50.7 54.0 49.7 48.0 53.2 51.2 53.8  
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Source: Markit, BNP Paribas  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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