Global Daily – US growth is probably peaking

by: Bill Diviney , Arjen van Dijkhuizen

US Macro: Consumption to stay solid, but GDP growth is peaking – September headline retail sales printed below expectations at 0.1% mom (consensus: 0.6%), although the core ‘control group’ – which is a better indicator for GDP growth – was notably stronger, at 0.5% mom. The weakness in the headline was driven by a fall in restaurant sales, likely due to disruption in North & South Carolina following Hurricane Florence. With the September data, we now have a more complete picture of personal consumption expenditure (PCE) in Q3. Core nominal retail sales grew 4.7% annualised in Q3, which suggests PCE grew c.3.0% – in line with what we had forecast for the quarter. While this is down on the 3.8% PCE growth in Q2, it is still well above potential, reflecting elevated consumer confidence, continued rises in employment, and gradually firming wage growth. Looking ahead, consumption is likely to cool further to something resembling potential (c.2%). Thereafter, we expect a slowdown in investment growth, with higher government spending picking up some of the slack in GDP growth in 2019. Overall, we expect growth momentum to remain strong for the remainder of the year, but it is currently peaking – if it has not done so already – and will slow considerably into 2019, dropping below potential by the end of the year. Our annual growth forecasts remain at 3.0% for 2018, and 2.7% for 2019. (Bill Diviney)

Asia Macro: Weathering the storm – Emerging Asia is also feeling the heat from escalating US-China tensions and from rising rates in advanced economies. Portfolio inflows have fallen, financial market pressures have intensified and regional financial conditions have tightened. Despite this general contagion, differentiation based on country-specific fundamentals still do play an important role. That explains why countries with external deficits (India, Indonesia, Philippines) have been faced with the strongest currency pressures, although much less than hard hit EMs such as Turkey and Argentina. However, if we look at stock market performance, even the more creditworthy countries have underperformed due to the US-China conflict. Meanwhile, regional growth was strong in the first half of this year, accelerating to a two-year high of 6.4% yoy, as India’s acceleration offset the resumption of China’s gradual slowdown. Still, recent indicators signal that regional growth momentum is weakening. Our regional manufacturing PMI fell significantly in the course of this year, partly driven by a deteriorating export outlook on the back of US-China tensions, a gradual slowdown in world trade and a tightening of financial conditions partly related to policy rate hikes in several countries aimed at mitigating currency weakness. Putting all pieces together, we think that regional growth peaked in the first half of 2018 and will slow into 2019. That said, we only expect a moderate slowdown, partly because Indian growth is expected to remain solid while China is adding fiscal stimulus and is tweaking its financial deleveraging campaign to offset drags from previous targeted tightening and trade tensions. For more background, see the ABN AMRO Asia Watch – Weathering the storm, published earlier today. (Arjen van Dijkhuizen)