Trade conflicts pose a risk to growth

January 2019

After a strong December, emerging markets generated a more muted performance in January. Nevertheless, emerging economies are expected to continue to drive global growth. However, one of the principal risks to growth in emerging markets appears to be the ongoing trade dispute between the US and China. The IMF urged countries to “resolve co-operatively and quickly their trade disagreements”.

  • Export growth declined in China during December
  • China’s economic growth lost momentum in Q4 2018
  • Lower food prices curbed inflation in India

To view the series of market updates through January, click here.


After a strong December, emerging markets generated a more muted performance in January. Nevertheless, emerging economies are expected to continue to drive global growth: the International Monetary Fund (IMF) believes that economic growth in emerging markets will slow from 4.6% in 2018 to 4.5% in 2019, and then to improve to 4.9% in 2020, whereas the global economy is forecast to grow by 3.5% this year and 3.6% next year. One of the principal risks to growth in emerging markets appears to be the ongoing trade dispute between the US and China. The IMF urged countries to “resolve co-operatively and quickly their trade disagreements … rather than raising harmful barriers further and destabilising an already slowing global economy”.

 

“China’s economic growth continued to lose momentum”

 

China’s economic growth continued to lose momentum during the final three months of 2018, expanding at an annualised rate of 6.4% during the fourth quarter, compared with third-quarter growth of 6.5%. Over 2018 as a whole, China posted growth of 6.6%, slightly exceeding the official government-set target for the year of 6.5%. Looking ahead, the IMF expects China’s economic growth to slow to 6.2% in 2019 and in 2020 as financial regulatory tightening and trade tensions with the US takes effect.

China’s annualised rate of consumer price inflation eased from 2.2% in November to 1.9%, and manufacturing output continued to contract in January. Exports dropped during December, falling by 4.4% compared with November, while imports declined by 7.6%, dampened by the trade conflict with the US. Over 2018 as a whole, imports rose by 15.8% and exports rose by 9.9%. The Shanghai Composite Index rose by 3.6% during January.

Official full-year growth estimates suggest that India’s economy will grow by 7.2% in the fiscal year ending in March 2019, compared with last year’s rate of 6.7%. The IMF predicts that India’s economy will expand by 7.5% in 2019 and by 7.7% in 2020, underpinned by lower oil prices and slower-than-expected monetary tightening.

Falling food prices curbed inflationary pressures in India during December: the annualised rate of consumer price inflation fell from 2.33% in November to 2.19% in December. Meanwhile, wholesale prices declined from 4.64% to 3.8%, checked by lower prices for fuel. Elsewhere, growth in industrial production fell to 0.5% during November, dampened by a decline in manufacturing output. The CNX Nifty Index fell by 0.3% over the month.


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