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Global Economy Shows Signs of Regained Footing

Global Economy Shows Signs of Regained Footing

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Global Economy Shows Signs of Regained Footing
Growth steadies as prospects rise in U.S. and China; Europe remains a weak spot

Many economists remain cautious about the sustainability of any improvement in China’s economy. PHOTO: QILAI SHEN/BLOOMBERG NEWS
By Eric Morath and Paul Hannon
Updated Dec. 16, 2019 6:56 pm ET
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The global economy is regaining some of its footing, with recent economic and trade developments in the U.S. and China offering some comfort that the slowdown is easing.

U.S. business activity improved to a five-month high in December, a new survey showed Monday, and China’s industrial output and consumer spending accelerated in November.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite closed Monday at the highest levels ever, their latest milestones in a long string of records this year. Europe’s benchmark Stoxx Europe 600 index set its first new high in more than four years, though new data showed the continent remains mired in low growth.

The economic measurements came as the U.S. reached a limited trade deal with China and put the finishing touches on a new trade pact with Mexico and Canada. Lawmakers in Washington also reached a deal to keep the government operating through September, avoiding a repeat of the government shutdown in early 2019. The result of the U.K.’s election also eased some uncertainty about how and when the country would leave the European Union. Meanwhile, the U.S. Federal Reserve said it would pause interest-rate cuts, suggesting the economy has found stability.

“We’re looking at moderate economic growth in 2020,” said Scott Brown, chief economist at investment firm Raymond James. “The downside risks look much less severe than they did back in August.”

Figures released Monday by China’s National Bureau of Statistics showed industrial output for November was 6.2% higher than a year earlier, accelerating from a 4.7% year-over-year increase in October. According to a separate release, China’s retail sales climbed 8% in November from a year earlier, compared with October’s 7.2% increase.

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After the release of the data, economists at UBS and Oxford Economics raised their forecasts for 2020 Chinese economic growth to 6%, up from earlier predictions of for 5.7% growth.

Monday’s market reaction in part reflects that the U.S. and China deal likely means the trade dispute has reached “peak tariffs” and that negative economic consequences should dissipate, UBS economists said in a Monday research note. “This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment,” they said.

U.S. composite purchasing managers index
Source: IHS Markit
Note: Readings above 50 indicate expansion
Dec16
Apr17
Aug17
Dec17
Apr18
Aug18
Dec18
Apr19
Aug19
Dec19
48
50
52
54
56
58
Sep 19×51
U.S. purchasing managers were more optimistic about economic activity early this month, pushing a measure of overall output to a five-month high, IHS Markit said Monday. The gain was led by expectations of solid growth in the services sector. U.S. manufacturing is still expanding but at a slower pace than in November. The survey was conducted between Dec. 5 and Dec. 13, before recent trade and government-funding developments. A final December figure will be released Jan. 2.

“The welcome signs of improvement help to ward off recession risks,” said Chris Williamson, chief business economist at IHS Markit. The analytics firm expects the U.S. economy to expand 2.2% in 2020. Last week, Fed officials projected 2% growth in 2020.

The U.S. economy has grown at a 2% pace in recent quarters and advanced 2.5% in 2018, according to government measurements.

Monday’s data is the latest to indicate the U.S. manufacturing sector has stabilized after a tumultuous year marked by trade uncertainty. In addition to trade developments, oil prices are up about 30% from a year earlier, a trend that could halt further contraction in energy-related manufacturing. Auto makers also have labor agreements in place, and the global economic slowdown doesn’t appear to be as severe as some feared.

A remaining risk factor is setbacks at Boeing Co. , which said Monday it would suspend production of the troubled 737 MAX next month.

Demand for manufactured goods was down slightly in October from a year earlier, according to the Commerce Department’s latest data, but orders for civilian aircraft and parts were down 25%.

The global economy has steadied in recent months, although global growth is expected to slow to 3% for 2019—the lowest rate since the economic crisis, the International Monetary Fund said in October. The IMF expects improvement next year, estimating 2020 global growth at 3.4%.

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Change from a year earlier in China’s industrial output
Source: National Bureau of Statistics via CEIC Data
%
2016
’17
’18
’19
3
4
5
6
7
8
9
July 2019×4.8%
“That is to say, a rebound. But we are also saying there are quite significant downside risks to this forecast,” IMF Director Kristalina Georgieva said last week at The Wall Street Journal’s CEO Council.

Meanwhile, the eurozone’s economy continues to flirt with stagnation. Surveys of purchasing managers across the eurozone Monday pointed to a sharper decline in the export-oriented manufacturing sector in December, offset by a slightly stronger expansion in the more domestically focused services sector.

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IHS Markit’s composite purchasing managers index for the currency area—a measure of private-sector activity— was unchanged at 50.6, pointing to meager growth. The index’s readings for the year’s final quarter so far are the weakest since 2013, when the currency area faced was starting to emerge from its twin government-debt and banking crises.

The European Central Bank’s economists Thursday lowered their economic growth forecast for next year to just 1.1%, the latest in a series of downgrades stretching back to June 2018.

At a news conference Thursday, ECB President Christine Lagarde gave no indication that policy makers were considering another round of stimulus measures to follow those announced in September, instead pointing to “some initial signs of stabilization.”

“What I think gives us some hope…is the fact that those downside risks that we had on the horizon are less pronounced,” she said.

In the U.K., a similar survey of purchasing managers pointed to another month of declining activity. In Japan, such surveys of purchasing managers also pointed to stagnation in December, as they did in November.

—Grace Zhu, Liyan Qi and Bingyan Wang contributed to this article.

Write to Eric Morath at eric.morath@wsj.com and Paul Hannon at paul.hannon@wsj.com

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