Economic Environment

Trends in the global economy in 2018

The global economy continued its growth trajectory in 2018. However, economic momentum slowed significantly over the course of the year. Regional trends were also more disparate than in 2017 and growth in global trade weakened. The escalation of the trade conflict between the United States and China, as well as fears that the United States would introduce additional tariffs on automotive imports increasingly weighed on the economic climate. In addition, financing conditions for a number of emerging markets deteriorated following interest rate hikes by the Federal Reserve. This led to capital outflows into the dollar zone and corresponding currency devaluations. By contrast, monetary policy in the eurozone and in Japan remained expansionary.

Gross domestic product

Real change compared with previous year

Economic trends by region

• Weaker economic growth in the E.U.
• Acceleration of growth in the United States
• Economic cooldown in China
• Delayed recovery in South America

As we had forecast, GDP growth in the E.U. slowed to just under 2% in 2018 (2017: +2.5%). Besides capacity bottlenecks, the decline in economic momentum was primarily attributable to weaker export demand. In addition, the rising oil price led to higher import values and energy prices drove up inflation, which dampened growth in consumer purchasing power. Growth in France (+1.5%), Italy (+0.8%), Spain (+2.5%) and the United Kingdom (+1.4%) was in line with our expectations, while Germany turned in a disappointing performance (+1.5%). This was attributable to a large extent to difficulties in the introduction of the new Worldwide Harmonized Light-Duty Vehicles Test Procedure (WLTP) emission standard in the automotive industry, which also affected its supplier industries and led to a slight overall decrease in GDP in the third quarter of 2018. At 4.2%, GDP growth in the eastern E.U. countries remained high but was lower than in the previous year (+4.6%). According to official estimates, Russian GDP rose faster than in the previous year, at 2.3% (2017: +1.6%). The economy was supported by the rising oil price and strong growth in the construction sector, while the weak ruble and sanctions imposed by the E.U. and the United States had an offsetting effect. Consumer confidence also declined signifi- cantly, among other factors due to higher inflation rates and the increase in the retirement age.

In the United States, the expansionary tax policy led to stronger-than-expected growth of 2.9% (2017: +2.2%). Rising employment figures and income tax cuts boosted private consumption; investment was stimulated by the corporate tax reform. By contrast, headwinds came from foreign trade in the second half of the year. Exports slowed as a result of China’s new import tariffs, which were introduced in response to higher U.S. duties.

Average annual growth in the emerging markets of Asia declined only slightly (2018: +6.2%; 2017: +6.4%). However, economic momentum in China slowed significantly over the course of the year. Overall, China saw growth of 6.6% in 2018, slower than in 2017 (+6.8%). The trade conflict with the United States in particular unsettled consumers and investors. Growth in Chinese industrial production declined over the course of the year. Automotive production declined by 3.8% after tax incentives expired in the previous year. Momentum slowed somewhat in the electronics industry and weakened significantly in the textile industry. Growth picked up in the construction sector. Economic output in the remaining emerging markets of Asia rose at the same rate as in 2017 (+5.6%).

In Japan, growth declined again in 2018 after the exceptionally strong increase in the previous year (2018: +0.7%; 2017: +1.9%). Although private sector investment in production facilities continued to grow dynamically as a result of low interest rates and high capacity utilization, private consumption only rose moderately and export growth declined significantly. The trade conflict between the United States and China also increasingly made itself felt. In addition, extreme weather conditions and a severe earthquake led to a decline in GDP in the third quarter of 2018.

South America continued the recovery that started in 2017, albeit only at a moderate pace (2018: +1.0%; 2017: +1.6%). The truck drivers’ strikes and the political uncertainty ahead of the presidential elections in the fall prevented a stronger economic recovery in Brazil (2018: +1.3%; 2017: +1.0%). Argentina suffered a loss of confidence among external investors, succumbed to a severe currency crisis and fell back into recession (2018: –2.4%; 2017: +2.9%). The crisis in Venezuela further intensified (2018: –15.0%; 2017: –9.1%), while the other countries in the region saw stronger growth overall (2018: +3.0%; 2017: +2.0%).