Depth report

　　

Entering the second half of the year, more and more institutions began to publish outlooks for major economies. On the whole, although the overall growth momentum of developed economies has not changed, there is a significant difference between the strong growth of the United States and the moderate growth of Britain, Europe and Japan. At the same time, doubts about the mid-term endurance of the US economy, concerns about the tightening of the global financial environment, and concerns about political uncertainty are putting downward pressure on the economies of advanced economies.

U.S. leads advanced economies

 　 The initial value of 4.1% quarter-on-quarter growth in the second quarter has enabled the US economy to lead other countries in the advanced economies. Although this data is lower than the 4.2% growth rate previously expected by all parties, it is still the strongest performance since the third quarter of 2014. In terms of growth contribution rate, the net export contribution rate of 1.1% was in line with expectations, and the 4% consumption expenditure far exceeded expectations, which to some extent made up for the decline in fixed asset investment.

　　In comparison, the Eurozone and Japan, which experienced rapid growth in 2017, seem to have passed their "peak". The Eurozone’s latest second quarter GDP growth rate was 0.3% on a month-on-month basis. Although there was an increase from the weak growth rate in the first quarter, the growth was less than the expected 0.4%, and the recovery momentum was weak. As of now, Japan’s second-quarter GDP data has not yet been released. Fox Economic Research, an international economic analysis agency, believes that considering that the slowdown in domestic wage growth in Japan continues to depress consumer confidence, the industrial output in May showed its first decline in four months and other factors. In the second quarter, Japan was able to get rid of shrinking in the first quarter. Growth trend, but the overall recovery is lower than expected. A Reuters survey predicts that Japan's GDP in the second quarter will increase by 0.3% from the first quarter.

 　 The recent economic growth trend in the UK is similar to that of the Eurozone. After the downturn in the first quarter, a series of data in the second quarter showed that the economy was back on track, but the momentum was far less than before. Market research firm Markit believes that the UK economy has recently been supported by the service industry represented by the retail and wholesale industries, and the service industry PMI has reached the highest level since the fourth quarter of 2017. According to current forward-looking data, the UK's economic growth rate in the second quarter may remain at 0.4%.

Short-term stability can hardly conceal expected differentiation

 　 In the current situation of rapid output expansion in the first half of the year, in June the Federal Reserve and the International Monetary Fund predicted that the US economy will grow at 2.4% and 2.7% during the year. Citibank is more optimistic, believing that the inventory reduction in the second quarter has dragged down US economic data to a certain extent, and the situation of replenishing inventory in the third quarter will provide confidence in the subsequent economy; at the same time, the contribution of net exports to GDP in the second quarter is mainly due to the price advantage of US agricultural products. , The net export data in the third quarter will not undergo a major reversal. Therefore, it is not difficult to achieve the Trump administration's 3% growth target during the year.

 　 For the Eurozone, although the recent economic growth rate has been slower than expected, the growth prospects are generally stable. Recent forward-looking data show that stable internal demand provided support for the euro area to maintain its growth momentum during the year. In the context of rising uncertainties in the external trade environment, the free trade agreement signed between the EU and Japan will greatly promote bilateral trade and provide external impetus for the follow-up development of the Eurozone.

 　 It is worth noting that although the Eurozone can maintain its growth momentum, the lack of economic momentum has become more apparent in the beginning of the third quarter. Market data shows that the Eurozone's comprehensive output index and service industry index were 54.3 and 54.2 in July, which were lower than the 54.9 and 55.2 in June. This fall is the overall fall in the euro area. The data shows that in addition to Germany's comprehensive PMI index rising to a new 4-month high, France, Italy, Spain and Ireland have all experienced different degrees of decline. Among them, the Spanish comprehensive PMI index has fallen to a new low in 56 months. Therefore, the Fox survey shows that although the European Central Bank and the European Commission both set the 2018 economic growth forecast at 2.1%, it has fallen from the 2.3% market forecast three months ago.

 　 Similar to the Eurozone, all parties predict that Japan's economic growth momentum in 2018 will be significantly weaker than in 2017. The latest PMI index for July also shows that Japan's service sector as a whole has maintained its previous weak growth trend. The latest data is 51.3, a slight decline from 51.4 in June. Although continuous business confidence remains positive, the level of optimism continues to decline. In contrast, the manufacturing forward-looking data is slightly disturbing. The PMI fell to the lowest level in 11 months of 52.3, the output growth rate was steady but fell to the lowest level in 4 months, and the growth rate of new orders also fell to 21. The lowest level in the past month. Therefore, although the Bank of Japan predicts that the Japanese economy may grow by 1.4% to 1.7% during the year, the International Monetary Fund and other major investment institutions are expected to grow at only 1% or 1.1% during the year.

 　 Compared with the other three major economies, the UK’s growth forecast is as “low-key” as always. Although the second quarter further recovered from the slight growth in the first quarter, all parties are not optimistic about its economic outlook for the year. The core challenge is that the export dividend from the previous depreciation of the pound has not been transformed into supply-side capital investment due to the uncertainty of Brexit, and other fixed asset investments have also stalled due to uncertainty. Although the government's infrastructure and other expenditures have provided support for economic growth, the continuity of growth in the service industry that supported the UK's economic rebound in the second quarter is worrying. Data show that the service sector has a poor start in the third quarter. The service sector PMI in July fell to 53.5 from 55.1 in the previous month, and the number of business activities and orders declined to varying degrees. Therefore, although the Bank of England and the International Monetary Fund both predict a 1.4% growth this year, the median forecast by Fox for dozens of investment institutions is 1.3%.

Sustainability of the U.S. economy is in doubt

 　 The short-term strong growth of the US economy has become the key to supporting the overall improvement of developed economies, but more and more research reports have begun to pay attention to "when will the next round of crisis come" and "when will the US economic turning point come".

 　 The debate over the medium and long-term growth drivers of the US economy is not unfounded. Since the yield difference between the 2-year and 10-year U.S. Treasury bonds is regarded as a barometer of the U.S. economy, discussions about the flattening of the U.S. Treasury yield curve have never been reduced. Although the 10-year treasury bond in the first quarter gradually fell after approaching 3% for the first time, and investors' attention was shifted to the increase in long-term bond yields in a short period of time, the trend of flat yields has continued. In fact, the spread between the 2-year and 10-year Treasury bonds announced by the St. Louis Fed in early August has fallen below 0.30%, the lowest level in 11 years. This also makes investors doubt the sustainability of US economic growth.

 　 Although there is still a certain gap between the current situation and the inversion of the yield curve as a precursor to the crisis, more and more analyses have begun to focus on the root cause of the weak rise in long-term bond yields. The Fed's increase in interest rates to increase short-term interest rates, and the increase in long-term bond holdings by long-term investment institutions and lower long-term interest rates can be partially explained. However, investors are increasingly worried about whether this means that the current economic cycle has entered the second half, and investors' optimism towards the long-term economy has begun to decline. The core of explaining this expectation lies in the long-term structural difficulties of the US economy, including factors such as the excessively high absolute level of debt caused by the large-scale fiscal deficit of the US government, the aging of the population, and protectionism that depresses medium and long-term labor productivity.

 　 The reason that worries investors about the further deterioration of the yield curve and long-term growth prospects is the path of interest rate hikes by the Federal Reserve. The analysis believes that the strong economic growth in the United States is forcing the Fed to raise interest rates faster than previously expected. Whether it is tax cuts or large-scale infrastructure projects in the near future, the focus of the US government's efforts to stimulate the economy is on the demand side. However, the labor market supply has begun to show tension, and the historical low of the unemployment rate has reflected the tension on the supply side to a certain extent. Although the capital investment of companies has been at a high level recently, the July American Suppliers Association Manufacturing Index showed that most companies have concerns about investment, and they are worried about how large and large an area should be invested. Taking into account the delayed effect of transforming investment into supply capacity, future inflation may rise due to US government policies, forcing the Fed to raise interest rates even in the face of long-term economic growth, which will bring risks to the US economy.

Political uncertainty has an impact

 The political factors affecting the global advanced economies in 2017 may be mostly limited to individual regions, such as Brexit and the North Korean nuclear issue. The political uncertainties faced by advanced economies in 2018 include not only Brexit, Iranian nuclear, European immigration and other regional issues. More critically, the impact of global trade protectionism risks on the macro economy has begun to appear. Uncertainty in the trade environment, declining business investment confidence, and impacts on investment and supply chains have become the core source of downward pressure in the future prospects of Japan, Britain and Europe.

 For the Eurozone, although the results of the US and European leaders' meeting at the end of July were more positive than expected, all parties are still cautious about the future trade environment expectations. Most of the EU's internal manufacturing companies have begun to adjust the industrial supply chain layout to deal with the trade frictions that have begun . Market Director Rob Debosson said that changes in the trading environment have begun to impact the confidence of manufacturing companies in the Eurozone. This is particularly evident in the German economy. Capital Investment Macros said recently that the recent industrial and trade data in June showed that although the German economy had a strong momentum before, it has clearly felt the negative effects of trade tensions and is expected to slow down moderately in the future.

 　 For Japan, the recent forward-looking data of the manufacturing sector, especially the number of overseas orders and fluctuations in business confidence, have highlighted the impact of trade protectionism. What makes the Japanese economy feel even more chill is the exchange rate risk of the yen. The rise in trade frictions and geopolitical risks will undoubtedly make the yen, which is regarded as a safe-haven asset, a target for all parties to increase their holdings. The subsequent appreciation of the yen will cause secondary damage to Japan's already struggling manufacturing industry.

    For the United Kingdom, although International Trade Secretary Liam Fox has contacted the US representative many times, the request for exemptions from various tariffs is still inconclusive. Compared with the direct impact of the trade war, Bank of England Governor Carney said that the UK is more worried about the indirect impact on the UK economy caused by the decline in global investment confidence behind the trade war. In addition, the end risks of the Brexit problem that has plagued the UK since the second half of 2016 have become prominent. Although all parties still predict that Britain and Europe may achieve a certain degree of compromise, Liam Fox's judgment of "no agreement to leave the European Union is 60%" has to make more and more business organizations worry about the UK's economic prospects.

The growth of developed economies may be "blocked" by the United States

 As the negative effects of the U.S. trade protection policy gradually became apparent, countries such as Germany and Japan unanimously expressed their doubts that “the growth rate in the first half of the year was good, but the outlook for the second half of the year was not good”. The growth of developed economies in the second half of the year is likely to be "blocked" by the US trade policy.

 The "report cards" released by Germany, Japan and other countries in recent days show that developed economies have achieved good economic growth in the first half of the year, and some indicators have exceeded expectations. However, as the negative effects of the U.S. trade protection policy gradually emerged, countries such as Germany and Japan unanimously expressed their doubts that "the growth rate in the first half of the year was good, but the outlook for the second half of the year is not good." The growth of developed economies in the second half of the year is likely to be "blocked" by the US trade policy.

 On August 14, the German Federal Statistics Office released data showing that the country’s economy grew by 0.5% in the second quarter compared to the previous quarter, which was better than market expectations. At the same time, the growth rate of the German economy in the first quarter was also revised up from 0.3% to 0.4%. However, in the outlook of the German government departments and research institutions, due to the impact of the US government's tariff policy, it is hard to say whether this growth momentum can continue in the second half of the year. The German Federal Ministry of Economic Affairs stated in a statement that “the current increase in global uncertainty is affecting the demand for German export products and domestic investment”. Earlier, the German Federal Minister of Economic Affairs Peter Altmeier clearly pointed out that the US government’s tariff policy Jobs and economic growth are being "destroyed". The German think tank Ifo Institute for Economic Research also lowered its forecast for German economic growth this year and next.

 The situation facing Japan is quite similar to that of Germany. On the 10th, preliminary data from the Cabinet Office of Japan showed that Japan’s actual gross domestic product (GDP) grew at an annual rate of 1.9% in the second quarter of 2018, not only reversing the negative growth in the first quarter, but also better than market expectations. However, the Japanese government and researchers have also expressed their worries about the US provoking economic and trade frictions. Kobayashi Shunsuke, an economist at Japan's Yamato Research Institute, said that "we are worried that Sino-US economic and trade frictions will affect Japanese companies' exports." Japan’s Finance Minister Taro Aso said, “Sino-US trade frictions and other factors may have an impact on the Japanese economy, and the future faces uncertainty.”

 Even the United States itself is suffering from the impact of trade protection policies. On August 14, data from the U.S. Department of Labor showed that the U.S. agricultural export price index fell 5.3% month-on-month in July, the largest decline in 7 years. According to data from the US Department of Labor, not only did the price of exported soybeans fall by 14.1% in July, but also the export prices of corn, wheat, fruit and dried fruit all fell to varying degrees.

 In some people's eyes, the US authorities' greatest confidence in provoking economic and trade frictions comes from high economic data and the stock market that has hit record highs. However, more and more studies have shown that the bull market in the US stock market that has lasted for many years is coming to an end. Mark Newton, founder and general manager of American Newton Consulting, said recently: "As early as the spring of 2019, U.S. stocks may face a large adjustment of 40% to 50%."

 The analysis believes that the current prosperity of the US economy is closely related to the loose monetary policy that has not completely withdrawn. Once the "milk" of the monetary easing policy is completely cut off, the direction of the US economy is still unknown. Since the beginning of this year, the Federal Reserve has quietly slowed down the pace of "reducing the balance sheet", which also reflects its deep worries about this issue.

Top 20 economies in the world

    According to the GDP statistics of member countries released by the International Monetary Fund, the relevant data of the world's top 20 economies are roughly as follows.

The United States is without exception as the world's largest economy. In 2017, its economic aggregate still exceeded US$19 trillion, accounting for about 24% of global GDP. Since the United States became the world's largest economy in 1895, he has sat on this throne for more than 100 years. However, since World War II, the share of the US economy in the world has actually been on a downward trend. It dropped from 50% at the end of World War II to 35% in 1980, and then to the current 24%.

    Since China surpassed Japan in 2009, it has been the world's second largest economy after the United States. The total GDP in 2017 was US$12.25 trillion, accounting for approximately 15.5% of the global economy and 63% of the US GDP. According to research forecasts by many institutions, China's economic aggregate will reach or surpass that of the United States around 2030.

    After that, Japan, Germany, the United Kingdom, and France, as the developed economies of the world's old brands, have long ranked in the world for their economic aggregates. However, since the beginning of this century, with the rapid development of several emerging economies, especially the BRIC countries, their international rankings have been greatly improved.

Unprecedented shocks and challenges. For example, India and Brazil, which ranked seventh and eighth in 2017, have narrowed the gap with the United Kingdom and France in terms of economic aggregates.

     In addition to the tenth place, it brings together many regional powers around the world, such as Canada, Australia, Saudi Arabia, Indonesia and so on.

     From the perspective of economic growth, China is undoubtedly the engine of global economic growth. In 2017, the economic growth of mainland China reached US$1,050 billion, surpassing the EU’s 800 billion US dollars and the US’s 760 billion US dollars, becoming a veritable global engine and contributing about 30% of the world’s economic growth.

     Economic growth has surpassed that of the United States, which means that China not only approaches the United States in relative terms, but also has a narrower gap with the United States in terms of absolute GDP. It is a qualitative leap to reduce the relative value until the absolute value is reduced.