Global economy lives on edge as crisis veterans sound alarms

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Officials gathering for Group of 20 meetings in Buenos Aires this weekend will have plenty more crisis fodder than Lionel Messi’s World Cup performance to gab about.

We heard growing fears this week that a crisis might be brewing from various corners of the global economy, while central bankers find their place in the policy-tightening cycle and trade battles rage on.

Growth gossip

Three titans of past financial crises voiced some worry about the US ability to combat the next one, as a Bernanke-Geithner-Paulson show highlighted fresh weak spots since the last downturn a decade ago. The Minneapolis Fed chief said he thinks more interest-rate hikes could trigger a recession, while Chairman Jerome Powell says rates are on the best path “for now.” Cooling in the world’s No. 2 economy spells trouble, but China has many ways of insulating itself. UK’s Theresa May had another rough week of Brexit talks, while Trump told her to just sue the European Union (EU). Growth outlooks are being downgraded across Southeast Asia for the rest of 2018. And the International Monetary Fund says markets are too calm about trade-war risk.

As if that weren’t enough, World Cup fever was of little help economically to host Russia or to champion France.

It was a week to air grievances over tariffs. Fed chief Powell warned that trade barriers threaten wages and growth, even as the economy chugs along, while US businesses are getting loud about not getting protection from the protectionism. Beyond American borders, the European Union warned Trump about how tariff battles can lead to “hot conflicts.” The havoc is bringing Japan and the EU closer, and putting super-trade-reliant Vietnam on the defense. Europe is looking to convince the US to cut car levies, while the US just lodged formal challenges at the World Trade Organization against the EU, China and others for tariff retaliation. Trump’s top economic aide says China’s Xi doesn’t want to make a deal. One thing that hasn’t changed: China’s still America’s biggest banker.

There was something from everyone in UK data this week, with solid jobs numbers seeming to support the case for an August rate hike from the Bank of England, and a subdued inflation reading published the next day enough to convince the doubters of their case. Either way, the BOE pledged to weigh in on whatever Brexit deal materializes. Bank Indonesia held policy after three interest-rate hikes of a combined 100 basis points, seeing some stabilization in the currency after a slump and the Bank of Thailand signaled that steady second-quarter growth could spur a more hawkish stance. South Africa’s central bank warned of price risks, while Angola unexpectedly cut rates for the first time in four years. There’s little reason to expect big news out of the ECB for the rest of 2018, but a significant shakeup in global trade could cause a rethink of policy tightening, Bloomberg Economics argues.

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