The slowdown afflicting the world economy showed up in disappointing data on US jobs and German manufacturing on Friday, piling fresh pressure on to central bankers to launch a stimulus push to offset trade tensions and weakening demand.
The soft data came ahead of policy meetings at the European Central Bank and the Federal Reserve later this month, when investors expect officials in the eurozone and the US to launch new monetary easing to tackle the downturn. China is also pressing ahead with its own form of stimulus, announcing on Friday that it would loosen curbs on bank lending as it grappled with the effect of the trade war with the US.
In July the IMF said it predicted the world economy to grow by 3.2 per cent this year, significantly slower than its estimate at the beginning of 2019. While the Fund has predicted a rebound to 3.5 per cent growth in 2020, it has warned that such a recovery was "precarious" since it was premised on stabilisation in emerging markets and progress on resolving trade disputes.
But over the past two months Argentina has been buffeted by a new currency crisis, and trade tensions between the US and China ramped up sharply, with a new round of tariffs announced by Washington, with retaliation coming from Beijing, and threats of more levies in the coming months.
This week US and Chinese officials announced that they would resume face-to-face negotiations in early October, offering hope that further escalations could be avoided.
"Tempers are calmer now," Larry Kudlow, the director of the National Economic Council at the White House told CNBC on Friday.
Nonetheless there are limited expectations of any major breakthrough that could lead to a lasting commercial peace between Donald Trump, US president, and Xi Jinping, his Chinese counterpart, so most economists, officials and business executives expect trade uncertainty to linger.
Economists polled by Reuters had predicted a 0.3 per cent increase. In the US, employment growth slowed to its weakest pace in three months in August despite a boost from temporary hiring for census workers, as uncertainty stemming from the US-China trade war weighed on the labour market. Non-farm payrolls rose by 130,000 last month, short of Wall Street's expectations for job creation of 158,000 positions, according to a Thomson Reuters survey of economists.
"For the Fed, today's figure clears the last hurdle for a 25bp cut in the funds rate at the September 18 meeting," said Michael Feroli, a US economist at JPMorgan.
The US jobs data suggests that employment growth is slowing, particularly in the manufacturing sector, where just 3,000 jobs were created in August.
However the unemployment rate remained at 3.7 per cent, near historic lows, and the labour market was far from showing signs of a huge slump.
Jerome Powell, the Fed chairman, is expected to steer officials towards a new interest rate cut of 25 basis points later this month, according to market expectations, on top of the 25 basis point rate cut approved in July. But the Fed is resisting the more aggressive easing campaign being pushed by Trump.
In Germany, factory production dropped by 0.6 per cent in July compared to the previous month, highlighting the weakening state of the eurozone's biggest economy.
When the ECB convenes next week Mario Draghi, the outgoing president, will weigh further interest rate cuts, as well as a possible return to quantitative easing, even though some officials have expressed reservations about such an aggressive package.
Written by: James Politi, Brendan Greeley, Don Weinland and Sarah Provan
© Financial Times