Global growth worries were stoked this week when South Korea’s economy unexpectedly contracted in the first quarter, sending alarm bells about the region’s economic strength and slowing demand from China.
South Korea’s economy shrank by 0.3% in the first quarter of 2019, its biggest decline since the financial crisis. Its economy relies on exports, largely to China, for its growth. Analysts had been expecting South Korea’s GDP to grow by 0.3%. Worries about global growth intensified when Japan then cut its growth forecasts for 2019 and 2020, and a closely watched survey in Germany showed business optimism falling.
Some fear that China’s stimulus programme may be having less effect than previously hoped, especially now that its economy is relying more on domestic consumption. Recent stimulus has been targeting consumers and wages, but this is generally less effective at boosting economic growth than traditional stimulus aimed at big infrastructure projects and increasing exports. Economists also say that inefficient state-run companies are squeezing out more productive private-sector firms, which is dragging on growth.
Meanwhile, the UK’s National Institute of Economic and Social Research (NIESR) said that global growth will continue but at a slower pace than the past two years and that data suggests the global growth cycle has peaked. It said that the trade war between China and the US, the withdrawal of easy money policies in the US in 2017 and 2018, and problems in emerging markets such as Argentina, Turkey and Venezuela, were creating uncertainty around the world.
UK households are more confident about their finances as their earnings rise at the fastest pace for a decade, according to the IHS Markit Household Finance Index. However, a key component, relating to consumers’ willingness to buy expensive “big ticket” items, remains weak. The survey’s reading on consumers’ attitude to expensive purchases reached its lowest level for 18 months in April. More positive data came from Springboard, which monitors footfall across retail destinations in the UK. It said that the number of consumers out shopping at all retail destinations, including shopping centres and high streets, rose over the Easter weekend by 6.5% on Good Friday, 1.2% on Saturday and 8.4% on Easter Monday. Diane Wehrle, Springboard's insights director, said: "Consumers clearly wanted to be outside enjoying the sun rather than visiting covered malls".
The news chimes with a survey by the Confederation of British Industry (CBI), which said retail sales rose for the first time in five months in April. It said the timing of Easter helped to push its monthly sales balance up to +13, meaning more retailers reported rising sales than falling sales. The index had suffered its biggest fall in 17 months in March when it fell to -18. Analysts had forecast a net balance of 0%.
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