Global Economy Endures a Case of the Mondays, All Week Long

Written by
Michelle Jamrisko
Written by

Michelle Jamrisko

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(Bloomberg) --

It's seemed like a case of the Mondays all week. The world's three biggest economies are in a funk, helping to kill the mood in Davos on top of all the trade-war jitters.

Here's our weekly wrap of what's going on in the world economy.

A Cold Sweat

The limelight on China's economic slowdown got even more intense this week, and it's all making President Xi Jinping sweat enough to make an unusual address to party leaders about the dangers of a downturn. Trade and investment are taking a real hit, and retail and real estate are declining especially swiftly, while corporate America worries about flailing Chinese consumption. The weakest-since-Mao birth tally isn't helping things, and the worst is yet to come, Bloomberg Economics analysis shows. Over in Japan, manufacturing stalled, and the situation in Europe is similarly dire. Unsurprisingly, the mood on the outlook was morose in Davos, with the IMF charting the weakest world growth in three years.

(Trade) Talk is Cheap

Markets are still taking a wild ride while keeping up hopes of a U.S.-China breakthrough by the March 1 deadline, but the U.S. Commerce chief says they're “ miles and miles” apart and reportedly the talks are falling short on the critical intellectual property issues. Each side added stresses this week, with a bit of taunting from President Donald Trump and the top White House economic adviser saying a deal hinges on enforcement and structural changes. China called a U.S. warning to Israel about Chinese investment “ridiculous” and the vice president rebutted Trump in Davos, though not by name.

While the he-said-she-said game is a bit murky, the data are decidedly downbeat, with two of the 10 global trade gauges we're watching falling into the danger zone. South Korea, Taiwan and Japan shouldered particularly bad exports reports this week.

Patience: Pause or Put?

Central banks are fast losing their chance to tighten before the next downturn in the cycle, though it's still unclear what the Federal Reserve's “patience” means for interest-rate hikes this year. Ray Dalio's leading a crowd calling for a rethink on policy tightening amid all the weak growth signs. The Bank of Japan never threatened on that front, holding policy in an expected decision while the cut to its inflation outlook reveals a bitter reality. In the euro area, Mario Draghi downgraded his assessment of economics risk, but hasn't yet signaled any rate hikes will be delayed, though two of the top contenders to succeed him said they don't know if the ECB will be able to raise rates this year. South Korea and Malaysia left interest rates unchanged.

Shutdown Economics

Meanwhile, the world's biggest economy endures a shutdown that's a month old and counting, and the White House says a zero-growth quarter is possible if this carries on through March. Joining furloughed workers is a growing list of casualties: oil prices, economic data releases, Federal Reserve clarity, and airport security among them.