Global Economy Reviews

13.08.2018 15:59 World Economy Review - July 2018

A recent report by the International Monetary Fund (IMF) warned of uneven economic growth around the world and rising tensions in trade.

Xinhua spoke with noted Argentine economist Jorge Marchini, vice president of the Foundation for Latin American Integration (FILA), about the IMF`s latest "World Economic Outlook Update" released on July 16th.

"There is unevenness in the effects of growth. One (region) is the United States, which has growth and impetus, the other is Europe, which is in neutral. The Asiatic drive is important and in Latin America, (growth) is negative," said Marchini.

The IMF forecast global economic growth for this year and the next to register 3.9 percent, but not across the board, with gross domestic product (GDP) contracting in some regions and expanding in others.

For Latin America, the IMF downgraded its growth forecast from 2 percent to 1.6 percent, mainly due to sluggish growth in Brazil and Mexico, the region`s No. 1 and No. 2 economies, and the financial crisis gripping its third-biggest economy, Argentina.

High inflation, a volatile currency and a huge public deficit led Argentina`s government to recently apply for a 50-billion-U.S.-dollar loan from the IMF.

Marchini blamed uneven expansion on the current interrelated dynamics of trade, which leads to ripple effects.

"The world today opens pathways to economic growth for some countries, but at the same time that tends to cause an imbalance in the global economy," he said.

As an example, he noted the United States, whose economy shows signs of recovery, is increasingly applying protectionist measures that impact other economies, especially in nearby Latin America.

"There is an international climate with many unknowns and fears, which sparks protectionism in the global economy and successive tensions between the United States and China and Europe, with repercussions in Latin America," said the economist.

"It`s a complicated international scenario," said Marchini. "The change in U.S. interest rates (which rose to 2 percent) has also had a negative impact on Latin American countries, practically of which have a balance of payment deficit, meaning they spend more than they earn."

While in the past two years the global economy has shown signs of recovery following the 2008 world financial crisis, countries continue to suffer from the aftermath, especially those with high debt or very open and expansive monetary policies, he said.

Latin America`s downgraded growth forecast is a reflection of recent changes in the political landscape of its leading economies, said Marchini.

Argentina, for example, has shifted from the early optimism that marked the first two years of President Mauricio Macri`s term to greater "pessimism," following the devaluation of the national currency.

Mexico is in a kind of holding pattern. The renegotiation of the North American Free Trade Agreement (NAFTA) with the United States and Canada is dragging on. At the same time, the country elected its first left-of-center president, Andres Manuel Lopez Obrador, on July 1, but he doesn`t take office until Dec. 1.

"In Mexico, the renegotiation of NAFTA plus the political change have generated a measure of doubt regarding what could happen in terms of Mexico-U.S. ties," said Marchini.

"In Brazil, the picture is above all political, taking into account that the country is mired in a slow economy and also finds itself in an election period with many unknowns," added Marchini.

Brazilians go to the polls on Oct. 7 to elect a new president, but the field of candidates has yet to be determined.

Other regional countries are also in flux, he said, including Colombia, where the government will be changing hands, and Venezuela, which continues to grapple with "serious (economic) difficulties."

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17.07.2018 20:32 World Economy Review - June 2018

America`s current strategy is not friendly, it is based on unilateralism, former French Prime Minister Jean-Pierre Raffarin said during a lecture at China Europe International Business School (CEIBS) in Shanghai.

Becoming embroiled in a trade war will not only negatively affect the world economy but also the living standards of ordinary people, he said of the United States-initiated trade dispute with China, during an interview with Xinhua on July 8.

China`s consistent efforts in opening up, deepening international collaboration despite the emergence of trade protectionism, unilateralism, and anti-globalization sentiments, are a reflection of Chinese wisdom, he added.

Raffarin, who has visited China many times since the 1970s, said he is impressed by the country`s rapid development, which he believes is a result of its reform and opening up.

"Every time I come to China, I can learn something new," he said, citing the country`s economic and social development, urbanization, and modernization along with the growing competitiveness of Chinese enterprises and poverty alleviation measures that have improved the lives of hundreds of millions of people.

China`s progress has also had global implications. In 2017, the country`s imports accounted for 10.2 percent of the world`s total imports of merchandise, while its exports made up 12.8 percent. This has made China a major trade partner of more than 120 countries and regions, according to data attributed to the WTO in a white paper issued in June under the title "China and the World Trade Organization."

China`s reform and opening-up drive is profound and concrete, and not only promotes the country`s development but also benefits the rest of the world, said Raffarin.

China`s relationship with the European Union is in focus this year as 2018 marks the 15th anniversary of the building of a comprehensive strategic partnership between both sides. China was the EU`s largest import trade partner and second-largest export target market in 2017, according to data from the EU`s statistical office Eurostat.

"Europe and China need to work together to safeguard multilateralism, this is what the world needs," Raffarin said.

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20.06.2018 20:03 World Economy Review - May 2018

The prospect of a trade war is threatening the global growth outlook, which otherwise is on course for a 40-year low in unemployment, the OECD said.

Global growth is set to nudge up from 3.8% this year to 3.9% in 2019, the Organisation for Economic Cooperation and Development forecast in its biannual Economic Outlook.

The Paris-based policy forum made up mainly of developed countries had in March penciled in an estimate of 3.9% for both years.

But it trimmed its outlook for 2018 due to a weak start to the year because of temporary factors like bad weather.

The OECD said budgetary easing had taken over from central bank stimulus as the main motor of global growth with three fourths of its member countries now estimated to be loosening purse-strings, led by massive US tax cuts.

Against that backdrop, the overall OECD unemployment rate was seen falling to 5% by the end of 2019, hitting the lowest level since 1980 and setting the stage for so-far elusive growth in workers` wages.

"In spite of all this good news, risks loom large for the global outlook. What are these risks? First and foremost, an escalation of trade tensions should be avoided," acting OECD chief economist Alvaro Pereira wrote in an introduction to the organization`s biannual Economic Outlook.

The warning comes as European governments brace for the expiration of temporary exemptions on new US steel and aluminium tariffs on June 1, which has outraged Washington`s closest allies.

Though the number of trade restrictions has crept higher over the last decade, further measures could create a significant drag on growth because the global economy is now more interconnected than ever before, the OECD said.

With tax cuts boosting US investment, the world`s biggest economy was forecast to grow 2.9% this year and 2.8% next year.

As a result the Federal Reserve was expected to keep gradually increasing its interest rates, bringing the Fed funds rate to 3.25% by the end of 2019.

The euro area economy was seen growing 2.2% this year and 2.1% in 2019 as the labour market and wages recover.

The European Central Bank was seen halting bond purchases this year and increasing its negative deposit rate in the second half of 2019.

Outside the euro area, the OECD marginally raised its outlook for Britain to 1.4% growth this year and 1.3% in 2019.

The Bank of England was expected to only gradually raise interest rates given the uncertainty over Brexit.

Japanese growth was seen at 1.2% both this and next year as growing labour shortages force companies to increase business investment and hire more workers.

Outside of the OECD, Chinese growth was expected to ease gradually from 6.7% this year to 6.4% in 2019 as infrastructure investment slows in the face of tighter lending conditions and tougher government project approvals.

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17.05.2018 19:03 World Economy Review - April 2018

The International Monetary Fund`s forecast of an accelerating global growth is too optimistic, according to Qatar National Bank. QNB expects a slowdown in the global economy to 3.6% in 2018.

In its latest World Economic Outlook, the IMF forecast an acceleration in global growth for 2018 to 3.9% from 3.8% in 2017. IMF has historically held a bias for optimistic growth forecasts, The Peninsula quoted the QNB report as saying.

The IMF has repeatedly revised down its forecasts with each release of the WEO until very recently.

We regard the IMF forecasts as too optimistic and expect a slowdown in the global economy to 3.6% in 2018. QNB Economics has therefore developed its own forecasts and we lay out below the four main reasons we expect the global economy to slow in 2018, QNB noted in its weekly economic commentary.

Listing out the reasons for a possible global slowdown, QNB analysts said: First, recent economic data suggests that the global economy has already begun to slow. The latest global Purchasing Managers Index survey, released at the beginning of April, was the weakest in 16 months.

While the reading of 53.3 is still in expansion territory (above 50), it is below the average reading in 2017 of 53.8. Additionally, recent indicators of growth in the world`s largest economy, the US also suggest a slowdown.

The Atlanta Fed produces an estimate of GDP in the US, based on the latest data, which points to growth of 2% in the first quarter of 2018, down from 2.9% in Q4 2017 and 2.3% for 2017 as whole.

Second, the Chinese economy is expected to slow in 2018 due to continued policy tightening. The authorities aim to cool the property market, reign in leverage in the shadow banking sector, and further cut capacity in old industries. Q1 GDP was steady compared to the previous quarter at 6.8%, but marginally down from full-year 2017 growth of 6.9%.

Additionally, slower credit growth points to further cooling of the economy during the remainder of 2018. Credit growth slowed to 10.5% year on year in March 2018, down from a recent peak of 13.2% in July 2017.

China is the largest contributor to global growth and a slowdown in China is also likely to have knock-on effects in a number of other economies, particularly in Asia.

Third, global monetary policy is likely to become less accommodative in 2018. The Fed is expected to press ahead with planned rate hikes and the European Central Bank has halved monthly asset purchases since 1st January and is expected to wind down the program further from September.

Both the Bank of Japan and Bank of England are also expected to tighten policy. As a result, global financial conditions are likely to tighten and long-term bond yields are rising, which is likely to restrain growth.

Fourth, higher oil prices could also be a drag on growth as they reduce the disposable income of consumers in oil importing countries. Low oil prices during 2014-16 were not fully passed on to the consumer as a number of countries took the opportunity to cut subsidies.

However, since oil prices have started rising, subsidies have not been reinstated, so the cost of higher prices is likely to be more fully passed on to consumers. Oil prices averaged $55/barrel in 2017 and we expect them to average $63 in 2018 for the full year.

As a result, rising oil prices pose another headwind for global growth in 2018. The main positive driver of global growth this year is likely to be fiscal stimulus in the US, which introduced a number of tax reforms, including a reduction in the corporate tax rate from 35% to 21%.

The IMF stated in its latest WEO that it expects the US fiscal stimulus to add around 0.1 percentage points to global GDP growth in 2018. The various drags on growth that we have outlined above will more than offset the boost to growth from the US fiscal stimulus.

The expected slowdown in China alone is sufficient to subtract around 0.1 percentage points from global growth, before the knock-on effects on other economies are taken into consideration.

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13.04.2018 13:25 World Economy Review - March 2018

World trade in goods is maintaining a robust recovery, but it still might falter if trade tensions escalate further, the World Trade Organization said in its annual forecast.

Trade in goods will grow 4.4 percent this year after a decade averaging 3.0 percent a year following the financial crisis. Last year it grew 4.7 percent - much higher than the 3.6 percent forecast in September - and a further 4.0 percent rise is expected in 2019, the WTO said.

However, this important progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation, WTO Director-General Roberto Azevedo said in a statement. A cycle of retaliation is the last thing the world economy needs.

The United States and China have threatened each other with tens of billions of dollars` worth of tariffs in recent weeks, leading to worries that Washington and Beijing may engage in an all-out trade war.

The WTO`s 2018 forecast puts world trade growth at the top end of previous expectations, since the organization said last September that it expected 2018 growth of 1.4 to 4.4 percent, most likely around 3.2 percent.

The latest forecast raises that to 3.1 to 5.5 percent based on current GDP forecasts, but a continued escalation of trade restrictive policies could lead to a significantly lower figure, the WTO said.

These forecasts do not, and I repeat, they do not factor in the possibility of a dramatic escalation of trade restrictions, Azevedo told a news conference.

It is not possible to accurately map out the effects of a major escalation, but clearly they could be serious, he said. Poorer countries would stand to lose the most.

New trade restrictions could trigger cycles of retaliation that weigh on global trade and output, but disruption could equally come from central banks raising interest rates rapidly or from geopolitical tensions, it said.

Cyber attacks were a further risk, with potentially even greater impact on trade in services than trade in goods. Trade in commercial services grew by 7.4 percent in 2017, after two years of weak or negative growth, the WTO said.

Last year`s growth in goods trade was led by Asia, by investment spending and by higher commodity prices. China`s rebalancing away from investment and towards consumption could mean it imports fewer capital goods, putting a drag on world trade growth.

Less investment could also help reduce overcapacity in sensitive sectors such as steel and aluminum, thereby alleviating trade tensions, the WTO said.

Steel and aluminum were the targets of one of U.S. President Donald Trump`s three big tariff announcements this year, each more controversial than the one before.

The steel and aluminum tariffs, justified on national security grounds, came soon after a restriction on imports of solar panels and washing machines. They preceded a huge package of tariffs that Trump has proposed to punish China for its alleged theft of U.S. intellectual property.

China`s commerce ministry said that Washington`s attempts at dialogue were not sincere and vowed to retaliate should Trump escalate further.

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