Global Economy Reviews

21.02.2019 13:26 World Economy Review - January 2019

The world economy is headed for a period of "dull, low" growth, according to fund manager Janus Henderson, but the risk of an outright recession remains small.

Market participants are increasingly worried about the prospect of a serious economic downturn this year.

A long-running U.S.-China trade war and uncertainty around the U.K.`s exit from the European Union has soured business and consumer sentiment in recent months.

Most economists, as well as some the world`s business elite, agree that economic growth is slowing but policymakers have expressed some hope for a soft landing rather than a full-blown recession.

"There is definitely a slowdown in the momentum of the global economy. I don`t think the economy is going to be as strong as it was last year," Jane Shoemake, investment director of global equity income at Janus Henderson Investors, told CNBC`s "Squawk Box Europe" on Monday.

"Our central forecast is not for a recession… It is just for dull, low growth," she added.

In contrast, Nobel Prize-winning economist Paul Krugman warned earlier this month that there is a significant chance the world economy is headed for a recession either later this year or early next year.

Krugman warned there is "quite a good chance" of a recession in 2019, adding he was worried economic policymakers "do not have an effective response" if the economy slows down.

At the start of February, the European Commission sharply downgraded its forecast for euro zone economic growth in 2019 and 2020.

The Commission said euro zone growth will slow to 1.3 percent this year from 1.9 percent in 2018 and is expected to rebound in 2020 to 1.6 percent.

The estimates were markedly less optimistic than the EU executive`s previous forecasts, exacerbating fears that a global economic downturn is spreading to Europe.

An economic downturn in China, the world`s second-largest economy, has heightened concerns of a global recession but Europe has been the "real disappointment," Shoemake said.

"We have had a massive change in what expectations are for the Federal Reserve and so if they don`t raise any further, dividend yields (regular payouts from a stock) are going to look very attractive because bond yields are not going to be moving any higher particularly," she added.

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22.01.2019 11:24 World Economy Review - December 2018

The World Bank has revised its global GDP growth outlook for 2019 0.1 percentage point downward.

In its semi-annual “Global Economic Prospects” report, the World Bank says global economic growth is projected to soften from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019 amid rising downside risks to the outlook.

In 2020 and 2021, the global economic growth has been forecast at 2.8 per cent each year, 0.1 percentage point lower than earlier projections.

“International trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures," the WB says.

Worries over trade war, weak global growth and financial stress in the developing economies are likely to weigh on global growth outlook, bank said.

The World Bank left the 2019 growth forecast for developed economies and for the United States unchanged at 2 percent and 2.5 percent, respectively. The 2019 forecast for the euro area was lowered by 0.1 percentage points to 1.6 percent.

The World Bank downed its US GDP growth outlook for 2020 by 0.3 percentage points to 1.7 percent.

Chinese GDP growth forecast was downed by 0.1 percentage points to 6.2 percent in 2019 and left unchanged at the same 6.2 percent in 2020.

The bank kept its December forecast for Russia`s GDP for 2019 and 2020 at 1.5 percent and 1.8 percent, respectively. After two years of decline brought by Western sanctions and a collapse in global oil prices, Russia`s economy returned to a growth rate of 1.5 percent in 2017.

“In Russia, growth has been resilient, supported by private consumption and exports,” the World Bank writes in a report. “However, momentum has slowed, reflecting policy uncertainty, recent oil price declines, and renewed pressures on currency and asset prices.”

India`s GDP is expected to grow at 7.3 per cent in the fiscal year 2018-19, and 7.5 per cent in the following two years, the World Bank has forecast, attributing it to an upswing in consumption and investment. The bank said India will continue to be the fastest growing major economy in the world.

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18.12.2018 12:27 World Economy Review - November 2018

The Organization for Economic Co-operation and Development (OECD) warned about a slowdown in global economic growth for 2019 and urged countries to prepare for difficult times.

In its semi-annual report, the Paris-based entity cut its growth forecast for next year by placing it at 3.5 percent, four-tenths less than in June, when the forecast was 3.9. Also, for this year the forecast remained the same at 3.7 percent.

The OECD warned that the world economy will suffer a slowdown from next year, as a result of several factors among which stand out trade tensions, the rise in oil prices and uncertainty related to ongoing processes such as the departure of the United Kingdom from the European Union (Brexit).

The Paris-based entity said that while labour markets are in good health in major economies like the US, trade and investment have taken a hit from higher tariffs. "Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive," OECD chief Angel Gurria said.

A full-blown trade war and the resulting economic uncertainty could knock as much as 0.8 percent off global gross domestic product by 2021, the OECD estimated.

According to the report, the Eurozone will only grow this year by 1.9 percent and the next by 1.8, which means one tenth less in each period. In Britain, the OECD forecast growth would pick up from 1.3 percent this year to 1.4 percent in 2019.

Though at the source of the current tensions, the US economy was expected to fare better than most other major economies. The OECD`s 2018 and 2019 forecast for the US remained unchanged. The United States will advance 2.9 percent in 2018 and 2.7 percent in 2019. It said growth in the world`s biggest economy would slow from nearly 3.0 percent this year to slightly more than 2.0 percent in 2020.

Trimming China`s forecast, OECD said its growth would slow from 6.6 percent in 2018 and 6.3 in 2019 to a 30-year low of 6.0 percent in 2020 in the face of higher US tariffs.

It warned that "a much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hit financial market confidence".

In the Latin American region, the organization predicted a three-tenths growth cut in Mexico for the two years, with which the forecast for 2018 stands at 2.2 percent, and that of 2019 at 2.5.

For Brazil, it also predicted a setback, with an advance of 1.2 percent this year (eight tenths less) and 2.1 next year (seven-tenths less). In the case of Argentina, the country is expected to enter into a recession as the Gross Domestic Product will fall by 2.8 percent this year and 1.9 percent in 2019.

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20.11.2018 18:11 World Economy Review - October 2018

Growth is slowing in a number of the world`s big economies, and the International Monetary Fund is warning that investor sentiment could make a "sudden reversal" for the worse.

"Although still supportive of growth, global financial conditions have started to tighten," the fund said in its latest Regional Economic Outlook report for Middle East and Central Asia.

The report is published annually and gives a broad overview of recent economic developments and of prospects and policy issues for the medium term.

"Global conditions are changing in terms of the risk metrics," Jihad Azour, director of the Middle East and Central Asia at the IMF, told CNBC`s "Capital Connection."

"Although we`re still enjoying a high level of growth, that growth is plateauing," he added.

The IMF said higher U.S. interest rates, a stronger U.S. dollar, and financial market volatility could bring pressure in some emerging-market and developing economies.

"A worsening of these developments, or faster-than-anticipated monetary policy tightening in advanced economies, increases the risk of a sudden reversal in global risk appetite," the report said.

The IMF forecasts global growth for 2018-2019 to remain steady at its 2017 level of 3.7 percent, but the growth outlook for a number of major economies has been marked down.

In the United States, while the real GDP growth outlook for 2018 is unchanged at 2.9 percent, the forecast for 2019 has been revised down to 2.5 percent due to the recently announced trade measures.

The United States has entered a serious tariff dispute with China, and it remains unclear how long that conflict will last.

The outlook for emerging and developing economies is also weaker, reflecting downward revisions for some large emerging market economies due to country-specific factors, tighter financial conditions, geopolitical tensions and higher oil prices, according to the report.

"Real GDP in the Euro area will slow to 1.9 percent in 2019, compared to 2.9 percent in 2018. Growth will also moderate in the United Kingdom, following surprises that suppressed activity in early 2018," it said.

The IMF blamed the recent trade measures between the United States and China for projected declining growth in China, which it now sees at 6.2 percent in 2019, 6.6 percent in 2018 and 6.9 percent in 2017.

Despite a recent slide in oil prices, the IMF is more optimistic about the Middle East, but warned of numerous uncertainties in the region.

"The oil price has gone up by more than 60 percent in two years, and the levels that we`re seeing today are equivalent to those of 2015," Azour said.

The IMF forecast that oil exporters in the Middle East, North Africa, Afghanistan and Pakistan — which it refers to as MENAP — will experience visible improvements in external and fiscal balances in 2018–19.

"Economic activity in MENAP oil-exporting countries is expected to strengthen this year and next. Real GDP growth is projected at 1.4 percent in 2018 and 2 percent in 2019, up from 1.2 percent in 2017," the report said.

"Growth among MENAP oil-importing countries is expected to continue at a modest pace in 2018 and to strengthen slightly over the medium term. Growth in the region is projected to reach 4.5 percent in 2018, up from 4.1 percent in 2017, before moderating to 4 percent in 2019," in added.

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23.10.2018 20:07 World Economy Review - September 2018

The International Monetary Fund (IMF), in its latest World Economic Outlook (WEO), fell into the same trap as so many other forecasters have: ignoring both the temporary nature of Trump`s tariff strategy and the incoming wave of repatriated funds that have been languishing overseas for years.

The chief apologist for the IMF, Maurice Obstfeld (on loan from the University of California, Berkeley, and a former member of President Obama`s Council of Economic Advisors), in a note accompanying the WEO, said that world growth has “plateaued”: “Last April, the world economy`s broad-based momentum led us to project a 3.9 percent growth rate for both this year and next. Considering developments since then, however, that number appears over-optimistic: rather than rising, growth has plateaued at 3.7 percent.”

Those “developments,” not surprisingly, have to do with Trump`s trade wars and his “unsustainable” economic policies: “Not only have some downside risks that the last WEO identified been realized, the likelihood of further negative shocks to our growth forecast has risen. In several key economies [including, of course, the United States], moreover, growth is being supported by policies that seem unsustainable over the long term.”

Obsfeld, the economic counselor and director of research at the IMF, added that the present roaring economy in the United States is only temporary: “Growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving US interest rates higher. But US growth will decline once parts of its fiscal stimulus go into reverse.”

Obsfeld appears to be oblivious to two essential facts: It`s the Federal Reserve that has decided in its wisdom that it`s time to remove the punch bowl from the party by continuing to raise interest rates; and those “parts of the fiscal stimulus” that are scheduled to disappear (unless Congress extends them) won`t be felt until 2025, seven years from now.

Surely Obsfeld knows that of the 52 temporary provisions added to Trump`s Tax Cuts and Jobs Act (TCJA), half of them won`t roll off until 2025, but his group is anticipating them much earlier. The IMF is forecasting that GDP growth in the United States in 2019 will decline to 2.5 percent.

The IMF did get part of its forecast right: China`s economy is faltering and, with the assistance of Trump`s tariffs both present and prospective, is likely to decline further. It projects China`s GDP growth to drop from 6.6 percent this year to 6.2 percent next year, its lowest since 1990.

Missing from his commentary is any mention of the strategy Trump is employing, but instead he assumes that the tariffs Trump is using to get China to come to the negotiating table will continue forever.

To his credit, deep into his commentary, Obsfeld gets it right: When China comes to terms acceptable to Trump, that “would be a significant upside to [our] forecast.”

That “significant upside” is going to take place even if China remains stubborn in coming to the table, thanks to the half a trillion dollars that have already been repatriated under Trump`s TCJA with another trillion likely to be returning to the United States over the next couple of years.

Those “high tariffs” will ultimately result in low tariffs, providing a stimulus to the world economy that Obsfeld cannot, or will not, foresee. And if Congress makes those “temporary” tax cuts permanent, then the IMF will be forced to adjust upwards significantly its future World Economic Outlook reports.

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