1、Economic ResearchFebruary 22,2019Global Data Watch Global economy navigating the industrial storm so far Dovish central bank shift spreading far and wide Brazil and South Africa address long-term fiscal challenges Next week:global mfg PMI,Asian IP,US GDP,Powell testimonyTry imagining a place where i
2、ts always safe and warmGlobal growth slipped to a below-potential pace last quarter,a point next weeks US GDP report is likely to punctuate.The soft patch looks likely to persist at least through midyear as last years sharp decline in business confi-dence is translating into a capex stall that is hi
3、tting global manufacturing hard.While it is difficult to accurately gauge global business spending in real time,reports showing US core capital goods orders declining and steep falls in the exports of Asian capital-goods producers point to a capex contraction(Figure 1).The path of factory output is
4、easier to track.Global output posted a meager 1.2%gain last quarter and this weeks flash February reports point to a 1.3pt drop in the global manufacturing output PMI to 49.5 with the forward-looking new orders component falling to just 48.8(Figure 2).These readings would be the lowest since the Eur
5、o area debt crisis in 2012 and align with a near-halt in global manufacturing output.Consistent with these signals,we continue to revise down GDP forecasts including 1Q projections for the US and Japan this week.As we move deeper into the third phase of sustained sub-par performance of this expansio
6、n,the key question is whether it can weather the storm.We have argued against a recession this year as a backdrop of two years of strong cor-porate profit growth and still-accommodative policies should keep credit flowing and limit the corporate pullback.The spillover of industrial-sector weakness t
7、o labor markets and the service sector should thus prove limited.As we process the latest news,we are encouraged by what we see.A surpris-ing rise in service-sector flash surveys this week offset the slide in the Febru-ary manufacturing flash PMIs,which suggests the global all-industry PMI will rise
8、 to a level consistent with faster GDP growth than we forecast this quarter.Likewise,the latest labor market reports send a consistent message of solid overall growth in the face of manufacturing-sector weakness.We also are encouraged that the negative feedback loop between downside growth risks and
9、 tighter financial conditions has broken.-30-20-1001020304020152016201720182019%3m/3m,saarFigure 1:Asian merchandise exportsNote:Jan 19 est for EMAX.Source:J.P.MorganJapanEMAXChina4950515253545556201420152016201720182019Source:J.P.Morgan,MarkitDI,sa.Feb 19 est based on flashesFigure 2:J.P.Morgan glo
10、bal output PMI ManufacturingServicesContentsUS:Whats happening with trade policy?16What the Fed pivot means for EM18Euro area:A moderate boost from fiscal policy in 201920Euro area:Consumer spending drivers still look solid22Japans fixed investment:Stock cycle turning to headwind24Chinas hybrid mone
11、tary framework and its limitations26Argentina:Dissecting post-sudden stop recoveries30Global Economic Outlook Summary4Global Central Bank Watch6Nowcast of global growth7Selected recent research from J.P.Morgan Economics9The J.P.Morgan View:Markets10Data WatchesUnited States32Euro area40Japan44Canada
12、50Mexico52Brazil54Argentina56Colombia and Ecuador58United Kingdom60Emerging Europe62South Africa&SSA65EMEA EM focus68Australia and New Zealand69China,Hong Kong,and Taiwan71Korea75ASEAN77India81Asia focus83Regional Data Calendars84Bruce Kasman(1-212)834-JPMorgan Chase Bank NADavid Hensley(1-212)834-J
13、PMorgan Chase Bank NAJoseph Lupton(1-212)834-JPMorgan Chase Bank NA2Economic ResearchGlobal Data WatchFebruary 22,2019JPMorgan Chase Bank NABruce Kasman(1-212)834-David Hensley(1-212)834-Joseph Lupton(1-212)834-It is far too early to conclude that these positive offsets will persist and form the bas
14、e for an expected midyear bottoming in global growth.With the slowing in business spending now intensifying,a broader drag on the global expansion may still be in the offing.In addition,a slowing global economy is vul-nerable to new negative shocks and the political calendar points to a number of po
15、ssible flashpoints,notably regarding Brexit and several issues related to US international trade.Next Wednesday,the UK Parliament will vote on amend-ments to a government motion on Brexit.We think this dy-namic will push Prime Minister May to request an extension of Article 50 to retain control of t
16、he Brexit process.The US is scheduled to raise tariffs on Chinese imports on March 1.With talks proceeding,President Trump has indicated a will-ingness to extend this deadline,which is what we expect to happen.Meanwhile,Trump has until May 18 to respond to the Commerce Departments Section 232 invest
17、igation of auto imports.Our best guess is that Trump will refrain from im-plementing penalties or perhaps impose them selectively,with Europe the most likely target.The USMCA(NAFTA re-placement)also is a wild card.As part of the first procedural step in the US,the International Trade Commission is s
18、tudy-ing the potential impact of the agreement and is due to submit its report by March 15.Central banks doing their dovish partThe break in the negative feedback loop delivering easier fi-nancial conditions is linked to the increasing number of cen-tral banks tilting in a dovish direction,led by th
19、e Fed.The minutes to the January 29-30 FOMC meeting shed more light on last months momentous shift in rhetoric.The document revealed that officials retain a weak bias to tighten though recent speeches indicate they clearly will be more tolerant of above-2%inflation.More newsworthy is their intention
20、 to end balance sheet normalization later this year rather than in 2Q20,as we previously expected.The ECB also released its meeting minutes.Officials believe their forward guidance is working well and thus feel no urgency to adjust it.Mean-while,they instructed the staff to prepare options for futur
21、e liquidity operations.We think this leaves the ECB on track to announce a new LTRO in March or more likely April.With the RBA having abandoned its tightening bias,the next two weeks brings an important run of data,especially partial activ-ity data for January,the 4Q18 GDP print,and the latest updat
22、e on house prices that will be critical to assess the likelihood of a rate cut this year.The shift at the Fed has opened the door for widespread policy easing in the emerging markets.Over the past several months,our economists have cut projected 2019 EM policy rates by an average of about 65bp(exclu
23、ding Argentina,China,and Tur-key).While both CAD and CAS economies should benefit,the relief to the former is likely to be much bigger.The policy rate forecast has been reduced 95bp in high-yielding CADeconomies,with the largest cuts in Brazil and India,and by 20bp in low-yielding CAS economies(Figu
24、re 3).Although the EM central bank calendar was quiet this week,there were a few developments concerning some of the more hawkish members of the group.The improving inflation out-look has reduced pressure on South Africas central bank to tighten policy this year,particularly in light of the addition
25、al drag on consumers from the Budget(see below).We now expect the SARB to keep the policy rate on hold at 6.75%throughout 2019 and 2020.Turkeys central bank cut the RRR this week,ostensibly supporting credit while preempting political pressure for premature rate cuts.We continue to think the easing
26、cycle will start in June.Also,we think Bank Indonesia is preparing to cut the RRR after it toned down its hawkish rhetoric at this weeks meeting.Next week,the Bank of Korea is likely to sound more cautious about further rate hikes with exports tumbling and credit decelerating rapidly.While we still
27、pencil in an increase in 2H19,the risks are shifting toward the BoK remaining on hold.Banxicos meet-ing minutes suggested officials will stay on hold this year(our call),mindful of risks regarding financial stability,fiscal con-solidation,credit downgrades,and stubborn core inflation.Next weeks Quar
28、terly Inflation Report for 4Q18 will give more color.China:the high price of creditAs we discussed last week,the January credit report suggest-ed credit growth is turning higher in China.Our forecasts ex-pect stable loan growth,stronger but still weak shadow credit,and robust growth in capital marke
29、t financing to drive a mod-est 2%-pt pickup in TSF growth this year.However,the short-term benefit to the economy from faster credit growth comes at the cost of increased risks to medium-term financial stabil-64-93-20-73-69-37-100-80-60-40-200EMHYLYForecastTaylor-rule impliedSource:J.P.Morgan.All sa
30、mples exclude China,Argentina and Turkey.Figure 3:Change in 2019 EM policy rate forecastbp,change in end-2019 projections:Feb 19 vs.Nov 183Economic ResearchGlobal Data WatchFebruary 22,2019JPMorgan Chase Bank NABruce Kasman(1-212)834-David Hensley(1-212)834-Joseph Lupton(1-212)834-ity related to sky
31、-high private sector leverage.PPI inflation ebbed to just 0.1%oya in January and is likely to fall below zero soon,leading to much lower growth in nominal GDP,corporate sales,and industrial profits,similar to what hap-pened in 2015(Figure 4),even as debt servicing costs remain elevated.The combinati
32、on of faster credit growth and slower nominal GDP growth implies that debt(as a%of GDP)will climb by 8%-10%-pts this year.Industry drags on Euro area and Japan The news on manufacturing activity is particularly bleak in the Euro area and Japan.To be sure,the Euro area flash all-industry PMI increase
33、d a modest 0.4pt in February to a level consistent with 1.2%ar GDP growth.However,the PMI sig-naled a sharp intensification of the weakness in manufactur-ing,reinforced by a weak IFO,and a further slowing in the periphery.These developments challenge our forecast that a sharp bounce back in IP growt
34、h(from-5.3%ar in 4Q18 to 3%in 1Q19)will lift GDP growth to 1.8%this quarter.There also was mixed news on inflation.Negotiated pay growth edged up to a recovery high in 4Q18 and core inflation also rose in January.But,at 1.1%oya,core inflation remains muted and the increase partly reflects volatile p
35、ackage holiday prices and airfares.This weeks reports were sufficient to prompt a downward revision to 1Q GDP growth to 0.7%ar in Japan.Export vol-ume plunged 5.3%m/m in January,positioning Japan at the leading edge of the decline that is sweeping across Asia.Moreover,the manufacturing output PMI sl
36、id to just 47.0 in February while large firms business sentiment continued to decline alongside downbeat news on machinery orders.Next weeks IP report for January,which includes manufacturers output projection for February and March,will give more guidance on conditions in the manufacturing sector.I
37、n addi-tion to the 1Q GDP revision,we slashed our 1Q IP growth forecast to a 6%ar contraction.Brazils reform goes bold but risk is highPresident Bolsonaro presented his proposal for social security reform with estimated savings of BRL1.07 trillion in 10 yearssignificantly higher than the BRL780 bill
38、ion we esti-mated former president Temers original proposal would achieve(later reduced to about BRL470 billion).Bolsonaro showed his commitment to the proposal by handing it in per-son to Congressional leaders and defending it on national tel-evision.The proposal seems very solid in both its fiscal
39、 sav-ings and its political sensitivity as it addresses distortions in the system with a proportionally higher burden on top income pensions.We see Bolsonaros high popularity as the strongest lever to pressure a fragmented Congress to form a qualified majority and vote on an ambitious,unpopular refo
40、rm.Even so,starting the process from scratch lengthens the approval process and increases the risk of not getting a deal.We now expect the Lower House to vote on a watered-down version of the reform only in 2H19.But high ambition comes with high risk:the chances of a stronger-than-anticipated reform
41、 have increased materially but so have those for no reform at all.South Africa bites fiscal bullet South Africa also is grappling with difficult long-term fiscal issues.The 2019 Budget proposal reflects the challenging circumstances of a shortfall in fiscal receipts and the need for a long-term bail
42、out of Eskom,its largest state-owned entity(SOE),estimated at R23bn per annum over the next 10 years.Additional revenue and expenditure measures by the sover-eign largely offset the fiscal impact of the bailout over the next three years.However,this assessment understates the additional burden from
43、SOEs recognizing that efforts to im-prove the fiscal trajectory already were in the pipeline,a fulloffset of the bailout beyond the three-year horizon is hard to envisage,and eventual support to SOEs may well be larger and more front-loaded than currently penciled in.We think weak economic growth re
44、mains the largest risk to sovereign sustainability with 2%-2.5%GDP growth and a 2.5%of GDP budget deficit likely required to stabilize the debt ratio.Editor:Gabriel de Kock(1-212)622-6718 -1001020306810121412131415161718%oya,both axesFigure 4:China nominal GDP and industrial profits Source:PBOC,NBS,
45、J.P.MorganNominal GDPIndustrial profits4Economic ResearchGlobal economic outlook sum-maryFebruary 22,2019JPMorgan Chase Bank NADavid Hensley(1-212)834-Carlton Strong(1-212)834-Joseph Lupton(1-212)834-Global economic outlook summary Real GDPReal GDPConsumer prices%over a year ago%over previous period
46、,saar%over a year ago2018201920203Q184Q181Q192Q193Q194Q192Q184Q182Q194Q19United States2.8 2.11.8 3.4 1.41.52.3 1.8 1.8 2.7 2.2 1.41.6Canada2.01.81.72.01.21.51.82.22.32.32.02.02.0Latin America1.3 1.8 2.4 1.8 0.31.63.63.0 2.5 3.5 4.03.73.5Argentina-2.5-1.22.6-2.7-8.2-0.16.04.03.027.147.350.229.7Brazil
47、1.2 2.3 2.5 3.1 0.6 1.8 3.8 3.2 2.4 3.3 4.1 3.7 3.4Chile3.93.53.01.13.54.04.24.03.82.22.83.33.5Colombia2.7 3.1 3.1 0.9 5.02.8 4.5 3.5 3.5 3.2 3.3 3.5 3.7Ecuador1.1-0.2-0.83.6-2.51.0-1.5-2.0-1.0-0.80.30.80.7Mexico2.0 1.51.7 3.4 1.2 0.82.0 1.8 2.0 4.6 4.8 4.23.9Peru4.03.93.6-3.17.04.54.04.04.00.92.12.
48、62.4Uruguay2.1 1.9 1.9-0.1 0.5 2.0 3.0 4.0 1.0 7.3 7.4 7.8 7.2Venezuela-10.01.02.028250600000.Asia/Pacific4.84.54.53.64.74.34.65.03.92.01.92.02.0Japan0.7 0.50.6-2.6 1.4 0.71.22.5-3.5 0.6 0.9 0.4 0.3Australia3.02.62.71.02.83.02.62.52.92.11.81.62.0New Zealand2.8 2.5 2.6 1.3 2.0 2.9 2.6 2.5 2.4 1.5 1.9
49、 1.8 1.7EM Asia6.05.65.75.35.65.45.65.95.82.32.22.42.4China6.6 6.2 6.2 6.0 6.1 5.9 6.2 6.4 6.2 1.8 2.2 2.4 2.2India7.37.27.46.96.86.67.17.57.74.82.63.44.3Ex China/India3.8 3.3 3.5 2.83.93.33.3 3.6 3.7 2.0 2.0 1.8 1.9 Hong Kong3.32.72.60.42.04.03.53.33.12.12.62.83.0 Indonesia5.2 4.94.9 5.0 5.7 4.7 4.
50、7 4.7 4.8 3.3 3.2 3.0 2.8 Korea2.72.72.62.33.92.02.62.92.91.51.81.51.5 Malaysia4.7 4.4 4.3 6.7 5.7 4.5 4.3 4.3 4.3 1.3 0.3 1.3 1.8 Philippines6.26.05.96.16.46.16.15.76.14.85.93.32.1 Singapore3.2 2.03.0 1.4 1.4 3.61.0 2.8 3.0 0.3 0.5 1.4 1.6 Taiwan2.61.52.01.91.50.91.92.12.11.70.50.31.6 Thailand4.13.