Economic update August 2019

3 min read

Heightened trade tensions following Trump’s August announcement to increase tariffs on Chinese goods resulted in a bout of market volatility.

Developments in the global economy


The Australian economy started to slow in the June quarter, driven by declining consumer confidence and the housing downturn. GDP grew by 0.5% in the June quarter, reducing the annual growth rate from 1.7% in the March quarter to 1.3% in the June quarter, the slowest growth rate seen in nearly 10 years. Drivers of GDP growth in the quarter were government consumption and net exports. Dwelling investment, business investment and inventories were the main detractors.

The labour market showed strength in July following the RBA’s June rate cut, with an increase in 41.1k jobs over the month. The unemployment rate held at 5.2% in July and the participation rate edged up 0.1% to a July record of 66.1%. Although wages grew at a slightly stronger-than-expected rate of 0.6% in the June quarter, the annual growth rate remained flat at 2.3%.

Dwelling prices delivered good news in August with further signs of stabilisation for the housing market. A steady increase in prices in the last few months and a sharp rise of 1% in the CoreLogic median house price index, suggested that an upward trend in prices was underway.  Sydney and Melbourne housing prices drove the increase rising 1.6% and 1.4%, respectively.

Below average conditions remained evident in the NAB Business Survey, as business conditions fell 2 points to +2 index points in July, pushed by a decrease in the employment sub-index. Business confidence edged higher during the month to +4 index points, however still fell short of the long-term average.


Trump’s August announcement that the US would impose 10% tariffs on US$300 billion of Chinese goods sparked a slide in global equities. The Chinese government immediately responded by allowing the yuan to break USD/CNY 7 mark in a move that could be interpreted as retaliation.

The US trade deficit with China widened from US$30.1bn in June to US$30.2bn in July, a 5 month high. US exports to China are down 18.1% this year, while imports have fallen 12.2%, a reflection of diminishing trade both ways.

The University of Michigan US consumer sentiment index slipped from a preliminary reading of 92.1 to 89.8 in late August due to trade tensions and the ensuing volatility, down to its lowest levels since Trump’s 2016 election win. US annual inflation increased from 1.6% in June to 1.8% in July. Core inflation also edged higher from 2.1% to 2.2%, suggesting the figures could be rebounding to the Federal Reserve’s (Fed) target earlier than expected.

US July retail sales rose 0.7%, after gaining 0.3% in the prior month. Core retail sales jumped 1% in the July. These strong retail spending figures seem to be softening the impact of the decline of industrial and manufacturing production of 0.2% and 0.4%, respectively in July. 


China’s trade surplus with the US grew in August, surpassing a previous record set in June. China’s annual export growth however declined slightly to 9.8%, the weakest rate seen since March, yet only slightly beneath trends. Tensions between China and the US intensified in the latter half of August, with China announcing increases of 5-10% in tariffs on $75bn of US imports, plus tariffs for restoration of up to 25% on vehicles and parts. 

President Trump responded with tweets and announced further increases on tariffs. Gao Feng, a spokesperson for China’s Commerce Ministry however stated that they “are willing to negotiate and collaborate in order to solve this problem with calm attitude” signifying optimism in future trade negotiations.

The Caixin manufacturing PMI edged up from 49.9 in July to 50.4 in August. Despite an expansionary indication (above 50), downward pressure remains in the long-term due to ongoing trade conflicts affecting global demand. Industrial production posted its lowest numbers since 2002, easing from an annual rate of 6.3% in June to 4.8% in July.

In Japan, industrial production fell 3.3% in June after a significant drop in the previous month. The data is signifying slowing factory activity in line with weakening in the global economy. The Japanese trade deficit widened in July from ¥33.9 billion to ¥126.8 billion in August. Exports fell by -1.6% in the year to July compared with a fall in imports of -1.2%. CPI rose by 0.6% in the year to July, edging up from 0.5% in the year from June, highlighting that inflation in Japan remains slow.


The Eurozone core inflation remained low in July, finishing the month at 0.9%, an increase from 0.8% in June after a decline in previous months. The headline measure decreased from 1.1% to 1%. August annual CPI is predicted to edge up to 1.0%, displaying a slight improvement in conditions, yet still below targets. July unemployment held at 7.5%, its lowest level since July 2008.

Political risk became the focal point of European markets in late August as Italy’s Prime Minister Conte resigned, ending the League/5-star coalition. If a new coalition is not formed, a flash election may be called or President Mattarella may have to engage a caretaker technocrat government to enable the submission of Italy’s budget proposal to the EU in latter half of 2019.

The ZEW Eurozone expectations index fell from -20.3 in July to -43.6 in August, the weakest level since 2011, displaying a deterioration in expectations for economic growth.  German GDP contracted 0.1% in the June quarter in line with the median estimate. German industrial production tumbled 1.5% over June, a fall much sharper than expected, with weakness seen over all major sectors. 

The economy in the UK contracted 0.2% in the June quarter, primarily driven by the uncertainty caused after the expected Brexit deadline of 29th March. Retail sales were also affected due to the uncertainty of Brexit, as sales rose by only 0.2% in June. This brought the annual growth rate from 3.6% down to 2.9%, but was also partially due to the rise in the growing consumer adoption of online shopping. 

A more detailed summary can be found here

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Information current as at 30 August 2019.

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