Assessing the First Quarter's Economic Results

Now that most of the world’s leading economies have released their economic growth results for the first quarter of this year, we can begin to assess the health of the global economy in the first half of 2019 and its outlook for the remainder of the year. Going into this year, there were significant concerns about the direction of the global economy, with expectations that growth would slow in most of the world’s largest economies this year.  In fact, the first quarter results indicate that the global economy is slightly healthier than had been expected, with growth rates for many key economies beating expectations in the first quarter.  This has raised hopes that 2019 might prove to be a better year for the economy than had been forecast, particularly as early year growth has often been disappointing for many leading economies over the past few years.  Nevertheless, there are still a number of warning signs that need to be heeded by the leading economic players around the world, lest economic results in the coming months fall below expectations.  Furthermore, while many of the largest economies performed better than expected in the first quarter, a number of mid- and smaller-sized economies recorded significant slowdowns during that period.

Developed Economies: Many of the better-than-expected economic results during the first quarter of this year came from developed economies, a segment that had been expected to slow over the course of this year. The best results came from the United States, with the world’s largest economy expanding by 3.2% on a year-on-year basis in the first quarter.  Not only did this beat expectations, but it raised hopes that the US economy could come close to matching the 2.9% GDP growth recorded in 2018.  A number of European economies also did a little better than expected in the first quarter.  Most notably, the British economy expanded by 1.8% in the first quarter, defying expectations of a Brexit-driven collapse of the UK economy this year.  Meanwhile, the German economy rebounded a little, after nearly falling into a recession in the second half of last year.  Elsewhere, Japan’s economy grew by only 0.8% in the first three months of this year, but this was a significantly higher rate of growth than had been expected.  Likewise, while growth slowed in a number of faster-growing developed economies such as South Korea and Spain, these countries continued to grow at a faster pace than most of their developed counterparts.

Emerging Markets: For emerging markets, the economic results from the first quarter have largely been mixed.  On the positive side, China’s economic slowdown appears to have, at the very least, been arrested, with official GDP growth holding steady at 6.4% on a year-on-year basis.  However, some recent consumer spending and manufacturing data suggests that China’s economic troubles might not be over, while the on-again, off-again trade war with the United States continues to hinder China’s economic bounce back. Elsewhere in Asia, a number of large emerging markets continued to record high rates of economic growth, but for most of these countries, growth was slower than in previous years. Outside of Asia, the economic results released so far by key emerging markets has generally been disappointing, particularly in major economies such as Russia and Mexico.  In the coming weeks, a number of other key emerging markets such as India and Brazil will release their first quarter economic growth results, as these will be closely scrutinized to see whether or not economic growth in more emerging markets is also slowing.

There are a variety of reasons why, on the whole, the global economy performed better than expected in the first quarter of 2019.  One of the most important reasons is the fact that consumer spending levels have remained quite strong in many of the world’s leading economies, offsetting weaknesses in other sectors.  Likewise, government spending has also picked up in a number of economies, while businesses continue to invest at a relatively high level.  On the other hand, there are also a number of factors that have prevented growth from accelerating to a greater degree.  For example, labor shortages are severely holding down growth in many sectors of leading economies such as the United States, Japan and Germany, each of which has an unemployment rate that is now below 4%. For commodity exporters, relatively low commodity prices have continued to hold down growth for the past five years. Finally, concerns over rising trade barriers and the impact of a trade war between the United States and China have weakened the opportunities for export growth for most economies in recent months.

The economic results from the first quarter of this year have raised hopes a little that 2019 can be another year of steady growth for the global economy.  In fact, since 2012, the global economy has expanded by between 3.4% and 3.8% each year, the longest period of such steady global economic growth ever recorded.  Nevertheless, while hopes have been boosted by the results of the first quarter, there are still a number of concerns facing the global economy over the remainder of this year.  One of these is the threat of the trade war between the US and China intensifying and spreading to more countries around the world.  Another is the concern that consumer confidence levels could fall, taking away the key pillar of economic growth in recent years.  Overall, the fears of a sharp decline in global economic growth in 2019 appear to have receded somewhat thanks to the results of the first quarter.  Nevertheless, there are still many factors that could lead to slower economic growth in the coming months and these will need to be monitored closely by all of the world’s leading economic powers.  If these risks can be averted, 2019 could prove to be a surprising successful years for some of the world’s leading economies.