Macroscope | Economies in China and Europe are faltering. But where is the US economy heading?

While growth in China and the euro zone is clearly slowing, worrying investors, the markets are much less certain about the state of the US economy. Indicators point in different directions, and even the Fed appears unsure

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The New York Stock Exchange. Investors’ mounting concerns about America’s economy stem more from confusion than anything else. For every major piece of negative data, there is at least one other indicator suggesting growth is holding up. Photo: AFP

Published: 11:03pm, 21 Feb 2019Updated: 11:51pm, 21 Feb 2019

There is no shortage of economic indicators pointing to continued weakness in China and the euro zone. On Monday, the publication of data on Chinese car sales – which in 2018 suffered their first annual decline since the early 1990s – showed that passenger vehicle wholesale sales fell by almost 18 per cent year on year in January, the sharpest drop since the market began to contract last July.

The bleak figures came on the heels of data showing that producer prices slowed in January for the seventh straight month, adding to fears of deflation and putting further strain on industrial profits.

In the euro zone, which is becoming the focal point of anxiety among investors because of concerns that policymakers are underestimating the severity of the slowdown, survey data published by IHS Markit earlier this month revealed that growth has slowed to its weakest level since mid-2013. Germany, the region’s largest economy, which narrowly escaped a recession last year, is expected to grow by just 1.1 per cent this year, while Italy, the bloc’s third-largest, is already suffering a contraction in output.

Yet while China and Europe are at the centre of a global growth scare that contributed to sharp declines in asset prices at the end of last year, it is America’s economy that is the source of the greatest uncertainty in markets.

It is no coincidence that US stocks have proved more volatile than their global peers since last October. Having suffered its worst December since 1931, the benchmark S&P 500 index roared back last month, enjoying its best January since 1987, according to data from the Financial Times. The sharp swing stemmed partly from the Federal Reserve’s U-turn on monetary policy. Having signalled further rises in interest rates this year at its meeting just before Christmas, the Fed abruptly changed course late last month, putting its rate-hiking campaign on hold mainly because of mounting threats to global growth.