Global Talent Update -- June 2018

Europe, Middle East and Africa

The spotlight of the world falls on Germany now more than ever. It has assumed the EU's de facto leadership mantle in the wake of the U.K.'s impending separation from the bloc of nations, and also easily constitutes the continent's biggest economy. Though the picture of that economy isn't perfect, recent data predicts the second quarter of 2018 will show notable progress, despite some contraction experienced earlier in the year.

According to the latest monthly report from Deutsche Bundesbank, robust activity in the construction industry would account for much of the projected growth, as would high private consumption and spending by the state.

Bundesbank expectations for 2018's overall growth, which came in at 2.5 per cent in December 2017, have been tempered by the first-quarter declines in the German industrial sector and now stand at 2.0 per cent. However, bank president Jens Weidmann also stated in the report that he expected 2019's growth to outpace previous estimates, changing a 1.7 per cent estimate to 1.9 per cent. The biggest potential threats to Germany's economic growth, according to Reuters, are the possibility of continued trade disputes with Italy and the U.S.

Since the Brexit popular referendum and the subsequent adoption of that platform by the government of Prime Minister Theresa May, the U.K. economic outlook has been a mixed bag. In 2018, figures have come in at concerning levels across multiple economic metrics, with the Office for National Statistics' announcement of a 1.4 per cent decline in the British manufacturing sector from March to April constituting the latest cause for concern. ONS data for the year's first quarter found that manufacturing fell 0.5 per cent. This contraction, attributed to domestic turnover and falling exports, is seen by some as a side effect of Brexit, according to the Guardian, though few believe the Leave campaign to be solely responsible.

Philip Shaw, an economist at Investec, implied in a Reuters interview that it was unclear how long recovery will take, and numbers like these adversely impacted the chances of interest-rate increases by the Bank of England within the near future.

"The rebound in GDP as a whole in Q2, if there is one, could be pretty subdued and it certainly questions the likelihood of another rate increase in August," Shaw told the news provider.

The government statistics agency's Index of Production, which measures business output more generally, did note quarterly and year-over-year increases - 0.3 per cent in 2018's first quarter compared to 2017's last three months and 2.3 per cent during this period by contrast to the first quarter of 2017.

Asia-Pacific

Although its economy experienced some contraction for the first time in two years during 2018's first quarter, Japanese economists viewed this dip as a blip on the radar in an overall trend of slow but consistent recovery.

Government and business leaders of Japan are currently focused on the hopes that measures like quantitative-easing monetary policies and nationally mandated wage raises would counteract deflation and encourage further market recovery.

Regarding the former matter, Yukitoshi Funo, a new board member at the Bank of Japan, recently extolled the virtues of easing by citing problematic price trends at a conference in Sendai, Japan.

"Prices remain weak," Funo said, according to Reuters. "Risks that prices, centering on medium- to long-term inflation expectations, deviate downwards are large. It warrants attention."

Meanwhile, Bloomberg reported that BOJ governor Haruhiko Kuroda recently made a point of supporting a notable Japanese government proposal intended to galvanize inflation. At the June 20 European Central Bank conference, an event attended by Fed Chair Jerome Powell, Reserve Bank of Australia Governor Philip Lowe and other global economic leaders, Kuroda affirmed the benefits that could be realized - including the BOJ goal of 2 per cent inflation - if employers nationwide increased wages by 3 per cent each year in the immediate future.

History's record of socioeconomic well-being under martial law is uneven, trending toward the negative. This activity makes the success of Thailand, which recently experienced the strongest rate of quarterly GDP growth since 2013 (4.8 per cent) during the first quarter of 2018, a notable outlier.

Additionally, it could end up driving the military-led government, which has been in control since 2014, to schedule and hold the nation's first democratic elections in five years for early 2019, according to Bloomberg.

The International Monetary Fund noted that tourism and exported manufactured goods were responsible for the majority of this robust performance, as has historically been the case with Thailand. The former sector alone made up a sizable 10.6 per cent share of GDP during 2017.

Growth as strong as that seen in this year's first quarter, however, points to broader expansion than what the country's standbys could do on their own. Improvements to infrastructure are expected to further bolster the progress seen during early 2018 and could offset the adverse effects of factors like high household debt, low spending and a contracting labor force.

Americas

The American job market saw major gains in May 2018, according to the latest release of the Employment Situation Summary from the Bureau of Labor Statistics, and the unemployment rate fell to 3.8 per cent. With 223,000 positions added to nonfarm payrolls during the month - well ahead of estimates by Bloomberg, which predicted 190,000 jobs gained, and Reuters, whose surveyed economists projected 188,000 - the U.S. labor force swelled to proportions that represented some of the largest seen in almost 50 years. Retail trade, healthcare and construction made up the lion's share of these increases, with those sectors adding 31,000, 29,000 and 25,000 positions respectively.

Beyond the basic metrics of new roles created, other economic indicators showed additional evidence of sustainable progress. Average hourly earnings in the U.S. rose 8 cents to $26.92, which constituted a 0.3 per cent jump, and the labor force participation metric, while not rising from its static level of 62.7 per cent, didn't fall further from the decline to that figure seen in April. This meant there were not enough individuals who stopped looking for work to significantly impact employment in a detrimental way. Last but not least in terms of importance to business leaders, general consensus points toward an increase in benchmark interest rates by the Federal Reserve in July, though the Fed itself hasn't yet confirmed the hike.

One matter in particular has the potential to adversely affect the American economy: trade disputes that arose in the wake of President Trump's White House imposing sizable tariffs on steel and aluminum. The European Union announced June 20 that its own tariffs on major American exports would come into effect June 22, according to BBC News. This measure, highlighted by duties on motorcycles, bourbon whiskey, peanut butter and orange juice, came in retaliation to the U.S.'s refusal to exclude allies like the EU, Canada and Mexico from the import taxes despite previous claims of potential exemptions.

On July 1, the people of Mexico will elect a new president, and polling from Bloomberg estimated populist-left candidate Andrés Manuel López Obrador should comfortably win the nation's votes, with the former Mexico City mayor currently holding 50.8 per cent of the projected vote as of June 21. (The next-closest candidate, Ricardo Anaya, is behind Obrador by more than twofold, expected to bring in only 24.8 per cent of the vote.) There is little doubt that Obrador will have considerable effect on the nation's economy, but division exists as to what those changes will end up being, according to The Washington Post.

High-echelon business leaders in Mexico fear Obrador will endanger their investments and the Mexican business sphere at large. To counter this anxiety, he has held private summits with prominent worldwide investors in which he claimed to strongly support private-sector operations. Obrador's main political platform is a desire to purge government and big business of corruption, which is a major motivator of his supporters and a passion he's frequently espoused in the past.