Growing warnings about world economic outlook

In general the world economy has recovered and prospered since the Global Financial Crisis of 2007-2008, but there are growing warnings that the bubble might at least slow down. There is always a risk of it bursting.

International Monetary Fund:  World Economic Outlook, April 2019 Growth Slowdown, Precarious Recovery

After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies.

China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States.

The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened.

Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand.

Conditions have eased in 2019 as the US Federal Reserve signalled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall.

Greg Jericho (Guardian Australia): The outlook for the global economy goes from bright to precarious

At the start of last year things were looking almost upbeat. The title of the IMF’s January update, Brighter Prospects, Optimistic Markets, Challenges Ahead, is economic speak for “cripes, aren’t we all a bit unusually happy!”. By April 2018 the title had become “Cyclical Upswing, Structural Change”, which again spoke of economic sunshine, even if it did warn of the need to adjust to the post-GFC world.

By the middle of last year the July update was warning “Less Even Expansion, Rising Trade Tensions”, and the October outlook was a decidedly measured if still somewhat neutral, “Challenges to Steady Growth”.

But with this new year, all neutrality has disappeared. The January update stated it plain: “A Weakening Global Expansion”. And just in case you had not caught their drift, the latest outlook, released this week, was headed, “Growth Slowdown, Precarious Recovery

From brighter prospect to precarious recovery in less than two years. Hope you enjoyed that moment of economic joy while it lasted.

The decline is across roughly 70% of the world’s economies, with the IMF blaming the “escalation of US–China trade tensions”, troubles in the “auto sector in Germany” plus “tighter credit policies in China, and financial tightening alongside the normalization of monetary policy in the larger advanced economies.”

In effect the structural changes and rising trade tensions warned in previous outlooks all came to pass.

Financial Times:  US consumer sentiment misses view as economic outlook softens

US consumer sentiment dipped in April as consumers’ economic outlook weakened and as they thought “stimulative impact” of the tax overhaul “has run its course”.

The University of Michigan’s preliminary consumer sentiment survey slid to 96.9 in April, from 98.4 the previous month. That missed analysts’ expectations for a drop to 98, according to a Thomson Reuters survey of economists.

Despite the modest decline, sentiment over the past 30 months remains higher than any other time since the 1997-2000 US economic expansion, as consumer confidence “continued its sideways shuffle in early April”, the report noted.

The report also showed the impact of the 2018 US tax overhaul on consumer sentiment has “all but disappeared”. The decline in consumer confidence follows the best first quarter for the S&P 500 in 21 years but comes amid uncertainty about the US economic outlook. The report showed the index of consumer expectations about the future fell to 85.8 — its lowest level in more than a year — from 88.8 the previous month.

Officials at the Federal Reserve have outlined “significant uncertainties” over the US and global economic outlook, according to the minutes of the central bank’s latest meeting, with some officials stressing their outlook could “shift in either direction”.

The Newyorker: The High-Stakes Battle Between Donald Trump and the Federal Reserve

For months now, Trump has been publicly railing against the Fed. In private, Bloomberg reported, he has been asking his aides if he can fire Powell, a sixty-six-year-old Republican banker who was confirmed at the start of last year. (According to legal experts, the question is a murky one.) On Friday, Trump again defied the convention that the President stays out of monetary policy, calling on Powell and his colleagues to cut interest rates in order to boost the economy.

Referring to the rate hikes that the Fed introduced last year, which were the source of his animus toward Powell, Trump said, “I think they really slowed us down.” Trump’s senior economic adviser in the White House, Larry Kudlow, has also called for a rate cut.

In addition to jawboning the Fed, Trump has moved to exert more control over its deliberations by announcing his intention to nominate two of his ardent political supporters to its board of directors: Stephen Moore, a conservative commentator who served as an economic adviser to the Trump campaign in 2016, and Herman Cain, a Republican businessman who ran for President, in 2012.

Ignoring widespread criticism that neither Moore nor Cain is remotely qualified to sit on the Fed’s board, Kudlow said on Sunday that Trump is standing behind both of them. “We have two open seats,” he told CNN. “The President has every right in the world to nominate people who share his economic philosophy.”

Business Insider: Trump’s pick of former pizza-chain CEO Herman Cain for the Federal Reserve already looks like it could crash and burn

It’s been less than a week since President Donald Trump announced the selection of Herman Cain, the former Godfather’s Pizza CEO and 2012 Republican presidential candidate, for the Federal Reserve Board. The outlook already doesn’t look good for the potential nomination.

Washington Post: Four Senate Republicans signal opposition to Trump’s plan to put Herman Cain on Federal Reserve Board, all but sinking nomination

A swift defection of at least four Senate Republicans has all but doomed Herman Cain’s chances of winning a seat on the Federal Reserve’s board of governors, a striking rebuke to President Trump in his drive to remake the powerful U.S. central bank.

The rapid rejection of Cain — a 2012 GOP presidential candidate — pauses Trump’s effort to remold the central bank into a more political body with outspoken individuals who share his views. It also reflects a growing unease among Senate Republicans with the way Trump has tried to bend the institution to his will in the past six months.

Trump has jawboned Fed officials and pushed them to slash interest rates and flood the economy with cheap money, even though during his presidential campaign he accused the central bank of creating a “big, fat, ugly bubble.”

So uncertainty in the US doesn’t help.

RNZ Robertson: NZ economy well placed to handle impact of global downturn

The IMF is predicting New Zealand’s growth rates will be well ahead of other OECD countries in the face of a delicate moment for the global economy, Finance Minister Grant Robertson says.

Two days ago the International Monetary Fund cut its forecast for world economic growth this year as the global economy slowed more than expected, raising risks of a sharp downturn.

The impact of trade tensions between the United States and China and issues in Europe, including Brexit and some poorer performing economies among EU member countries, were among key risks contributing to a “delicate moment” for the global economy, IMF chief economist Gita Gopinath said.

In its third downgrade since October, the IMF said the global economy will likely grow 3.3 percent this year, the slowest expansion since 2016. The forecast cut 0.2 percentage points from the IMF’s outlook in January.

The projected growth rate for next year was unchanged at 3.6 percent.

Mr Robertson, who is at IMF and World Bank meetings in Washington, told Morning Report the IMF was predicting New Zealand’s growth rates will be well ahead of other OECD countries.

However, with economies slowing down in other parts of the world, there would be an impact for New Zealand as a small trading nation. The economy remained strong with sound fundamentals, including relatively low debt, low unemployment, and surpluses in the 2018 Budget.

So while the New Zealand outlook is relatively good any slowdown elsewhere in the world, especially the US, Australia (which is looking shaky) and China, will have a negative impact here.

7 Comments

  1. Blazer

     /  April 13, 2019

    the world is awash with unpayable debt instruments compliments of rampant Q.E.

    China,Russia,and increasingly, other countries want to curb the influence of the greenback in international commerce.

    The world effectively subsidises U.S hegemony through the U.S control of B.I.S,IMF ,Swift and western central banks.

    NZ’s economy as usual depends on international events-interest rates and exchange rates,which as we know are manipulated by the real criminals.

    Japan manages 20 plus years of deflation,so its possible we get another 10 years of this same medicine.

    As economists say the U.S can always pay its debts,by just ‘printing’ more greenbacks.

    Maybe they are ‘barking mad’!

    • Gerrit

       /  April 13, 2019

      There has long been a call by China and Russia to curb the greenback but both still use it as an intermediate in their commercial dealings.

      For example I buy a fair amount of consumables and engineering equipment out of Hong Kong. Every time I do they use the US Dollar as their currency of choice. Why not bypass the US Dollar?

      Because the Chinese like Russia is dependent upon trade and as their own currencies are fixed.

      “China’s central bank (People’s Bank of China – PBOC) carried out active interventions to prevent this imbalance between the US dollar and Yuan in local markets. It buys the available excess U.S. dollars from the exporters and gives them the required Yuan. PBOC can print Yuan as needed. Effectively, this intervention by the PBOC creates a scarcity of US dollars which keeps the USD rates higher. China hence accumulates USD as forex reserves. ”

      https://www.investopedia.com/articles/investing/040115/reasons-why-china-buys-us-treasury-bonds.asp

      “Hence, as long as China continues to have an export-driven economy with a huge trade surplus with the U.S., it will keep piling up U.S. dollars and U.S. debt. Chinese loans to the .U.S., through the purchase of U.S. debt, enable the U.S. to buy Chinese products. It’s a win-win situation for both nations, with both benefiting mutually. China gets a huge market for its products, and the U.S. benefits from the economical prices of Chinese goods. Beyond their well-known political rivalry, both nations (willingly or unwillingly) are locked in a state of inter-dependency from which both benefit, and which is likely to continue. ”

      So the more dollars the US prints, the larger the Chinese dependence upon it (to convert those QE created US Dollars to equally QE printed Yuan’s).

      A circle of currency printing and movement that no one either wants or is able to break.

      Totally stupid, but like religion, every believes it is for the best even though the outcome is a predictable crash.

      • Blazer

         /  April 13, 2019

        yes ..its the too big to fail scenario writ large.

        China has a tiger by the tail.

        Countries including Russia and China have increased their gold holdings substantially over the last decade.

        Breaking the western banking monopoly is a leviathen challenge.Ask Gaddaffi.

        Financial sanctions are the weapon of choice these days.

  2. Duker

     /  April 13, 2019

    There is support for the deficits dont matter view
    its called Modern Monetary Theory

    The package of eccentric ideas known as modern monetary theory — for example, that annual deficits are too small, and that the United States can essentially print money to pay off its debt…

    M.M.T., Mr. Alpert said, “successfully debunks 40 years of misassumptions of how markets and public credit work.”…..

    Big government deficits, for instance, were supposed to mop up available pools of capital and drive up interest rates, which would, in turn, elbow out private investors, damage growth and feed inflation.
    But the last decade was different. When deficits soared after the recession, interest rates fell and savings rates climbed. Investors are awash in capital. The economy has been expanding, slowly, for 10 years, with unemployment and inflation rates ensconced at record-low levels.
    One reason for the misjudgments may be that the economic models that confidently strode down the mainstream were hammered out in the decades after World War II, when American companies had an enormous appetite for capital investment. “We don’t live in that world anymore,” said Mr. Koo of Nomura. ….

    if the old ‘economic theory’ couldnt explain the world we have to day , why stick with it !

    • Blazer

       /  April 13, 2019

      The trouble is ‘economic theory’…changes all the time.

      Different ‘fashions’…Keynsian,Friedman and subsets of those doctrines are imposed without knowing the real ramifications.

      The measure of inflation is a good example of a convenient construct.

      Taking rampant property inflation out of the equation is a delusion.Rent or mortgage is easily the biggest component of expenditure for the average stiff.

      ‘no one saw it…coming’…on constant..standby.

      • Duker

         /  April 13, 2019

        Computer Models – the bane of economics and climate science. And yet politicians put even more faith in them . We see one of them every day- so called benefits from computer models of ratepayer spending on sports stadiums, complete nonsense of course

  1. Growing warnings about world economic outlook — Your NZ – NZ Conservative Coalition