The Forward View – Global: August 2019

The latest escalation in the US-China trade war – with the US imposing a 10% tariff on most remaining China imports – has reverberated through financial markets.

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US-China trade dispute escalates…again

This month we have recorded a podcast to accompany the Forward View – Global, giving you a 10 minute summary of our key forecasts this month. To listen, just click the link below.

Forward View Podcast

  • The latest escalation in the US-China trade war – with the US imposing a 10% tariff on most remaining China imports – has reverberated through financial markets. The decision follows closely on the heels of tariffs announced in May, the full impacts of which are still working their way through.
  • The policy response will also be important. We now expect the Fed to make two more 25bp cuts to the fed funds rate this year, with the first in September. China is also likely to use policy measures to offset tariff impacts, including allowing further depreciation of its currency. Other central banks have eased policy this year and this trend is expected to continue.
  • The pick-up in Advanced Economy (AE) growth in Q1 was not sustained in Q2. We expect AE growth to slow further in H2 2019 before stabilising in 2020 as policy supports kick in and due to a fading impact from Japan’s Q4 VAT increase. Trade exposed Emerging Markets are particularly struggling at present, with exports from East Asia falling significantly, while soft July economic data for China highlight the downside risks.
  • We have lowered our forecast for global growth in 2019 to 3.1% (from 3.2%) with a key factor being the weakness in the Indian economy. We have left our forecasts for 2020 (3.3%) and 2021 (3.5%) unchanged, with the expected improvement in growth due to policy easing stabilising AE growth, as well as a recovery in economies affected by more domestic factors (India and Latin America). Trade policy is a key risk – both in terms of the impact of what has been announced (as estimates vary – see p2) but also how the US-China trade dispute (and other trade issues) develop. Our forecasts assume no increases in tariffs beyond what has already been announced (nor any winding back) with the uncertainty about what happens from here dragging on business investment. Political risks are also evident in several countries and Brexit uncertainty remains high.

For further details, please read the The Forward View – Global August 2019