Analysts at Standard Chartered say the softening external environment has been the most commonly cited reason for downgrades to economic growth forecasts in 2019, including in advanced economies.

Taking the U.S. for instance, the Fed has attributed its dovish pivot largely to the weakening global growth outlook. This may be surprising for some given that the US is still the world’s largest economy when measured in market exchange rate terms and private consumption accounts for 69% of US GDP; total trade stands at 27%. Nevertheless, what really matters is momentum, i.e. the contribution to GDP growth.

Over the past few decades, while net exports’ contribution to GDP for advanced economies remained relatively stable in percentage points terms (fluctuating about the mean of 0), trend GDP growth has continually eased. This implies that the importance of the external environment has increased and net exports are increasingly becoming a significant driver of growth in advanced economies.

The next logical question to ask is “who constitutes the external environment?” – China (and AXCJ) increasingly does. China’s share of total world imports increased ten-fold from 1980 to 2018. Over the same period, China’s share of global GDP increased by 8.7x and 5.7x in PPP and market exchange rate terms, respectively, further highlighting the importance of demand from China in the external environment.