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Bill Diviney, senior economist at ABN AMRO, points out that the US-China trade war escalated to a new level last Friday and suggests that all of this is consistent with their base case for an ongoing escalation of the trade war, and consequently much weaker economic growth.

Key Quotes

“As a result of this, we are well below consensus in expecting growth of just 0.6% next year in the eurozone (consensus: 1.1%), and 1.3% in the US (consensus: 1.8%). The slowdown will continue to be led by manufacturing, but increasingly, the manufacturing slowdown will begin to infect other parts of the economy.”

“Already there are signs of this, with investment turning negative in the US and likely to do so in the eurozone, and jobs growth slowing in both economies. With the recent escalation in tensions, uncertainty for business will intensify further still, and likely lead to a renewed leg lower in confidence measures.”

“While eurozone flash PMIs stabilised in August, the German Ifo reached a new cyclical low today, and in the US, the Chicago PMI and the ISM manufacturing PMI are likely to signal further weakness when they are published next week.”