Global Economy Shows Strain as U.S. Steams Ahead
China, Japan and Germany show signs of stress, posing a risk to the U.S. should the trends persist
By William Boston in Berlin, Josh Zumbrun in Washington and Nina Adam in Frankfurt
The global economy has hit a soft patch, putting the U.S.’s robust growth at risk should the slowdown persist.
Economic output in Japan and Germany contracted in the third quarter, while in October consumer spending in China hit its slowest pace in five months and bank lending fell, according to data released Wednesday about the world’s biggest economies after the U.S.
“You’ve seen a bit of a slowdown—not a terrible slowdown,” Federal Reserve Chairman Jerome Powell said Wednesday evening. “It is concerning.”
One-time events played a role in some of these bumps, including a typhoon and earthquake that hit Japan and bottlenecks at German auto plants associated with new emissions standards.
But across the globe, economists and business executives warned about a common denominator that is hurting growth: trade battles among the U.S., China and others. Tariffs are hitting some businesses, and worries about the impact of worsening trade discord are also weighing on sentiment.
One company recently caught in the crosscurrent was German engineering firm Heidelberger Druckmaschinen AG. A ship bound for the U.S. carrying two large pressing machines it built at a Chinese plant was waylaid at a dock in Canada as the company haggled with its customer over how to divide the costs of new U.S. tariffs. The customer balked at a higher bill.
“Ultimately, we sold the machines to someone else,” a Heidelberger Druck spokesman said.
The global scenario stands in contrast to a U.S. economy that expanded at an annualized rate of 3.5% in the third quarter.
Germany, Europe’s anchor economy, reported its gross domestic product contracted at a 0.8% annualized rate in the third quarter, the first quarterly drop in 3½ years and the lowest rate since early 2013. The eurozone economy grew at an annualized rate of 0.7% in the third quarter, its weakest performance since early 2013.
“One month of no growth shouldn’t unleash panic, but at the same time we see that growth rates are weakening and there are a lot of unknowns,” said Ralph Wiechers, chief economist at the German Mechanical Engineering Industry Association.
Japan’s economy contracted at an annualized pace of 1.2% in the third quarter after expanding at a 3% annual pace the previous quarter.
Tokyo-based trading company Marubeni Corp.said the trade war hit its U.S. grain unit, Gavilon, after U.S. soy prices fell on a tumble in soy shipments to China. Beijing put a 25% tariff on U.S. soy imports in July. Marubeni said net profit for its food-products segment for the six months through Sept. 30 fell 46% from the previous year.
President Trump’s administration has imposed tariffs on $250 billion worth of goods imported from China. It has also placed tariffs in sectors including steel and solar panels. U.S. trading partners have retaliated.
While the U.S. economy has continued to outperform, there are signs the global slowdown is taking some toll on the U.S. as well, said David Joy, the chief market strategist for Ameriprise Financial Inc. He said the global growth slowdown has been one factor behind declines in U.S. stock markets and the plunge in oil prices that are likely to hurt U.S. oil producers.
“A deceleration in global activity will probably take a little wind out of our sails, but I don’t think it will have a huge impact yet,” said Mr. Joy.
Few economists predict a global recession, particularly given the strong momentum of the U.S. economy.
After climbing for most of the past two years, U.S. exports have trended down since May. But the U.S. economy is still being boosted by strong consumer spending, associated with low unemployment and individual income tax cuts enacted last year. Rising government spending, particularly on the military, has also boosted U.S. demand.
The U.S. is somewhat insulated from an international slowdown because its exports are only about 12% of gross domestic product, compared with a global average of about 29% and even higher in Germany, meaning the U.S. is less exposed than most countries when the global economy weakens.
A Volkswagen Touran SUV stands on a raised conveyor on the assembly line at a factory in Wolfsburg, Germany. Photo: Krisztian Bocsi/Bloomberg News
On Tuesday, the Organization of the Petroleum Exporting Countries cut its forecast for global economic growth to 3.5% for 2019 from 3.6% previously, saying that “the slowdown in the global economic growth trend has become more accentuated lately.” It pointed to trade tensions and tightening monetary conditions, notably U.S. interest rate increases. With global growth slowing, it sees demand for petroleum also slowing, which is weighing on oil prices.
A monthslong slowdown in China’s economy, driven in part by a crackdown on risky financing and jitters over the trade dispute between Beijing and Washington, is hurting spending there. Retail sales rose 8.6% in October from a year earlier, slowing from a 9.2% one-year gain in September. While automobiles have been slowing in recent months, a broader range of consumer products—such as stationary and jewelry—also slowed sharply.
China’s slowdown has been most felt in factories around the world. According to a global measure of manufacturing activity compiled by J.P. Morgan, output rose at the slowest pace in 28 months during October, while export orders fell for the second straight month.
In Germany, a rise in trade barriers threatens what has been a major source of strength for Europe’s powerhouse economy. German companies are major exporters, having stretched their supply chains around the world and invested heavily in selling to Chinese consumers and companies.
German exports of goods fell 1.2% in September from that month a year earlier, led by a 2.2% decline in shipments to countries outside the EU, according to the German statistics body.
German industry is so uncertain about how U.S. trade policy could impact its business that when luxury car maker BMW AGrevised its core profit figures down last week, the company warned that even that forecast may not hold to the end of the year.
“The trade conflict between the U.S. and China is a burden on the global economy,” said Nicolas Peter, BMW’s finance chief. “Should conditions deteriorate considerably we can’t rule out that it would have an impact on our forecast.”
For now, economists and corporate executives say a German recession doesn’t appear imminent. But as core indicators begin to buckle, they warn fresh shocks could emerge and tip the German economy off kilter.
“The uncertainty is palpable,” Mr. Wiechers said.
—Paul Hannon and Megumi Fujikawa contributed to this article.
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