USA, China trade dispute threatens global manufacturing growth


World manufacturing production growth is expected to slow down in 2019 as a result of continued conflict over trade and tariffs between the world’s two largest manufacturers: China and the United States. Manufactured goods account for more than 80.0 per cent of the total merchandise exports of both countries. Against the backdrop of falling global merchandise trade, the growth of world manufacturing value added (MVA)6 is — according to the latest estimates — expected to drop to 2.7 per cent in 2019, following 3.2 per cent in 2018.

The pace of MVA growth has been slowing down both in the United States and China. While annual growth in the United States is likely to drop to 1.9 per cent in 2019, following a rate of 3.0 per cent in 2018, China’s manufacturing growth is also expected to fall to 5.6 per cent from 6.1 per cent in 2018. Trade and tariff frictions between the United States and Europe are also taking its toll. U.S. restrictions on the import of several manufactured goods, compounded by uncertainties over Brexit, are contributing to a downturn in European manufacturing, which is expected to grow at slightly less than 1.0 per cent in 2019. Growth in East Asia is expected to be moderate, at a rate of 1.6 percent. The overall growth of industrialized economies for 2019 is expected to drop to 1.3 per cent from 2.1 per cent in 2018.

Developing and emerging industrial economies (excl. China) are expected to achieve a slightly higher growth in 2019 at around 3.0 percent compared to 2.7 in 2018. This can be to some extent attributed to the improving situation in Latin America where negative growth is expected to ease to -0.9 per cent in 2019 from -2.8 per cent in 2018.The fast-growing economies of Asia account for most of the developing countries’ growth. MVA is expected to rise by 8.2 per cent in India and 5.6 per cent in Indonesia. Least developed countries are expected to improve their production performance with a growth at 7.1 percent compared to 5.9 per cent in 2018. World manufacturing output growth has been decelerating since 2018, and this trend has continued in the second quarter of 2019 amid escalating trade tensions between the United States and China, with manufacturing output growth down to a rate of 1.7 per cent following a rate of 2.2 per cent in the first quarter of the year. The manufacturing sector which plays dominant role in global merchandise trade has been hit hard by tariffs and associated uncertainties.

Industrialized economies, which account for more than half of world industrial output, faced a contraction in the second quarter of 2019. Manufacturing output decreased by a mere 0.4 per cent, compared to the second quarter of 2018. North America’s manufacturing output rose by moderate 0.5 per cent, following a growth of 1.6 per cent in the preceding quarter, nearly entirely on account of weaker growth in the United States against the backdrop of fading fiscal stimulus from last year. Negative year-on year growth rates were recorded for industrialized economies in Europe and East Asia (0.8 per cent and 1.3 per cent, respectively). China’s seasonally adjusted manufacturing output growth rose by 5.8 percent in the second quarter of 2019.

This is the first time since UNIDO started compiling the quarterly index that China’s quarterly growth rate has dropped below the landmark figure of 6.0 per cent. Data on the growth performance of developing and emerging industrial economies (excluding China) indicated a further tendency of stabilization at a low rate after the abrupt plunge in the fourth quarter of 2018. The respective year-on-year output growth rate in the second quarter of 2019 is estimated at 1.0 per cent, following 0.9 per cent in the first quarter of 2019 and 0.6 per cent in the fourth quarter UNIDO Statistics 6 Statistics for Quarter II, 2019 of 2018. However, several major manufacturers in this country group still seem to be struggling with generally difficult economic conditions. Latin America observed an expansion of manufacturing output with a growth rate of 0.4 per cent compared to the second quarter of 2018. While in Argentina a deep recession was prolonged with a falling manufacturing output of 8.9 per cent, Mexico and Brazil, the region’s two largest manufacturers, witnessed positive year-on-year growth rates of 1.4 and 2.4 per cent, respectively. Brazil was able to return to the growth path, following two consecutive quarters of declining year-on-year output rates (minus 1.5 per cent in the first quarter of 2019 and minus 2.6 per cent in the fourth quarter of 2018).

Estimates based on limited data indicate a positive growth rate of Africa’s manufacturing output at around 2.0 per cent. Compared to the second quarter of the previous year, growth estimates based on limited data for African countries generally indicated a rise in manufacturing output of 2.0 per cent. Among others, Egypt’s and South Africa’s manufacturing output expanded by 2.2 and 0.9 per cent respectively.

(The Bridge News)

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