Slowing Business Activity Sounds Alarm for Global Economy - The Wall Street Journal

Slowing Business Activity Sounds Alarm for Global Economy - The Wall Street Journal

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Paul Hannon

Paul Hannon
The Wall Street Journal
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Updated Nov. 22, 2019 6:53 am ET

Business activity in some of the world’s largest economies remains sluggish as 2019 draws to a close, amid signs that a long slowdown in manufacturing is spreading to the services sector. 

Across the globe, factories have been hit by rising tariffs and slowing investment spending as businesses opt to wait out a lengthening period of unusually high uncertainty about future trade relations between the world’s leading economies. Meanwhile, leading sectors such as automobiles and electronic components confront specific challenges, such as tighter emissions standards. 

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In her first speech as head of the European Central Bank, Christine Lagarde Friday warned that a “fracturing” of the global economic system means that robust rates of economic growth “are no longer an absolute certainty.”

“Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year,” she said. “This has in turn depressed global growth to its lowest level since the great financial crisis.”

Surveys of purchasing managers published Friday show that declines in factory activity in Japan and Europe are becoming less severe, although service providers reported less buoyant growth than in earlier months.

Data company IHS Markit said its composite Purchasing Managers Index for the eurozone—a measure of activity in businesses—fell to 50.3 in November from 50.6 in October, indicating the currency area’s economy was close to stagnation. A level above 50 points to growth, while a reading below that mark points to contraction.

Sparks fly as a worker uses an angle grinder at a factory in Japan. Factory activity declined in November. Photo: Akio Kon/Bloomberg News

“Business remains concerned by trade wars, Brexit and a general slowdown in demand, with heightened uncertainty about the economic and political outlook driving further risk aversion,” said Chris Williamson, IHS Markit’s chief business economist.

A similar survey of Japanese businesses pointed to a decline in activity during November, which was partly due to severe weather and an October increase in the sales tax.

Both the Japanese and eurozone economies were on the edge of stagnation in the three months through September, and the surveys of purchasing managers indicate that a rebound is unlikely in the final quarter.

In the U.K., the uncertainties facing businesses are unusually high, with a general election Dec. 12 likely to determine the timing and form of the country’s exit from the European Union. The survey of purchasing managers recorded the sharpest decline in business activity since July 2016, the month after Britons voted to leave the EU.

The Organization for Economic Cooperation and Development said Thursday it expects the eurozone economy to grow by just 1.2% this year, and the Japanese economy to expand by 1%. It expects the U.S. economy to grow by 2.3%. All three are forecast to slow slightly in 2020.

The Paris-based research body said those low rates of growth could become standard if governments don’t roll back newly erected obstacles to growth, and take steps to raise low rates of investment.

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In both Japan and Germany—two of the world’s manufacturing powerhouses—factory activity declined in November, but less sharply than in recent months.

However, there were signs that weakness in manufacturing is taking a larger toll on the services sector, which has been the main support for economic growth this year.

That contagion is what the ECB was hoping to prevent when it cut its already negative interest rate in September and restarted a paused program of bond purchases this month.

With its own arsenal depleted, Ms. Lagarde called on eurozone governments to increase spending in an effort to revive growth. In doing so, she was repeating the pleas of her predecessor, Mario Draghi. However, an assessment of budget plans for 2020 released by the European Commission Wednesday indicated no such help was on the way.

Write to Paul Hannon at paul.hannon@wsj.com

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2019-11-22 11:53:00Z
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