IMF projected global growth at 3.2% in 2019, down 40 basis points from 18. Lead indicators like metal and oil prices point to slowing growth, primarily due to supply shocks from the US-China Trade War and the US-Iran tensions. Metal prices have started plummeting while supply disruptions caused by civil strife in Venezuela and Libya combined with US sanctions on Iran impacted oil prices. Instead of a contango, backwardation is discernible in Brent crude futures prices, pointing to slowing growth. Headline inflation remained subdued due to tepid aggregate demand. Both input as well as output prices exhibited deceleration.
Global manufacturing activity has slowed since early 2018 ostensibly synchronous with the inception of the trade war in Mar 2018. The slowdown can be attributed to weak business spending and low consumption demand for durable goods. The JP Morgan Global Composite Purchasing Manager’s Index (PMI) posted 51.7 in July, tad up from 51.2 in June, but below its long-run average of 53.7. Despite mild uptick in New Order Index in July, the Future Output Index which tracks company’s optimism level regarding the year ahead dropped to a new low. On the domestic front, headwinds from financial vulnerabilities in the corporate and NBFC space weighed on growth. GDP growth projections for FY20 have been revised downwards as high frequency indicators like automobile sales and credit growth point towards a significant deceleration.
The Stimulus
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