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Global economic trends

Dr Huw McKay, BHP's Vice President of Market Analysis and Economics talks about the economic trends affecting growth in the United States, China and India.



Key points

  • China’s economy is expected to slow modestly in the coming years.
  • China is expected to remain the largest incremental contributor to global investment activity through the 2020s even as its growth rates mature.
  • The Indian economy is on a healthy medium term growth trajectory and is now the second largest global steel producer.

  • India overtook China to become BHP’s major customer for metallurgical coal.
  • The outlook for the United States is uncertain, but we see a slowdown as more likely than a recession.
  • Economic conditions in Europe and Japan are weakening with the auto and electronics sectors at the centre of the slowdown.
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Global economic growth

All indicators suggest world economic growth is slowing.

This year, we expect global growth of 3.25 per cent to 3.75 per cent, a decline over the past two years when average growth was around 3.75 per cent. Next year, the range is likely to be 3 per cent to 3.5 per cent. 

The US dollar has been relatively steady over the past 12 months.

The big five economies – the United States, China, India, Japan and the European Union – are expected to record flat or slower growth in 2019 versus last year.

Globally, foreign direct investment has declined for the third consecutive year.

We believe trade protection constrains growth, which is why we remain vocal advocates for free trade and open markets.

Optimistically, despite protectionist forces in some markets, many advanced and emerging economies are embracing international trade and cross-border investment. Some examples include the:

  • European Union-Mercosur agreement;
  • Belt and Road Initiative;
  • Regional Comprehensive Economic Partnership; and
  • Comprehensive and Progressive Trans–Pacific Partnership.

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Chinese economic growth

We expect to see real GDP at 6 per cent to 6.25 per cent over the next two years, but this outcome could fall as low as 5.75 per cent if the trade tensions between China and the United States escalate further.

The Chinese export sector has suffered as a result of these tensions, as well as weaker domestic demand in Europe and Japan.

Nevertheless, China is expected to remain the largest incremental contributor to global investment activity through the 2020s, even as its growth rates mature.

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Indian economic growth

The Indian economy is on a healthy medium term growth trajectory.

India’s reforms, such as the introduction of a nationwide goods and services tax and improved infrastructure planning, have made it more attractive for foreign direct investment over the past five years.

The Modi government’s strong electoral performance provides a firm basis for further reforms in its second term.

Last year, India overtook Japan to become the second largest steel producer in the world. It is also BHP’s major customer for metallurgical coal.

By the mid-2020s, we expect demand for metals and energy to expand at roughly the same rate as India's economy - around 7 per cent.

India’s expanding resource and energy footprint is further reflected by its:

  • Status as the #2 incremental contributor to global oil demand growth;
  • Rise up the LNG import ladder;
  • Firm position as a top five potash importer;
  • Increasing relevance as a consumer of copper; and
  • 6 per cent year-on-year growth in its energy investment in 2018 (in a year in which global energy investment was flat).

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Major advanced economies

The outlook for the United States is uncertain.

The US economy weakened in the first half of 2019 following a very strong performance last year and we expect it will slow further in 2020 for a number of reasons:

  • Long term bond yields in the US remain historically low, reflecting growing uncertainty about the continuation of the current 10-year expansion cycle;
  • The benefits of fiscal stimulus is fading;
  • Inflation is lessening; and
  • Financial indicators are showing signs of fatigue.

We also see nervousness in the business community about the economic impact of the US administration’s trade policies.

The full cost of protectionism has not yet been fully felt by the US economy. But without policy changes, this inward turn will likely weaken domestic consumption, lessen the international competitiveness of US firms and result in domestic market declines.

Economic conditions in Europe and Japan are weakening.

Likewise, in Europe and Japan, economic conditions have softened.

In Japan, the slowdown in global auto and electronics sectors is hindering growth.

In Europe, rising political uncertainty has hurt business confidence.

In these economies, we gauge that any upside to growth in the medium term will have to come from external demand sources.

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Economic and Commodity Outlook

Read BHP's economic and commodity outlook in full

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Disclaimer

Data and events referenced on this page are current as of August 13, 2019. The data is compiled from a wide range of publically available and subscription sources, including Bloomberg, Platts, Wood Mackenzie, CRU, Thomson Reuters, Argus, Fertecon, FastMarkets, SMM, AME, Parker Bay, MySteel, LME, COMEX, SHFE, ICE, DCE, SGX and I.H.S Markit, among others. All monetary values are in US dollars unless otherwise specified.


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