(Bloomberg) --
Central bankers are listening intently to the trade story, and increasingly signing up to fight back.
Dig into recent comments and there’s a clear divergence between domestic and external factors, with optimism about consumers and the jobs market, but a growing sense of apprehension over the impact of trade tensions.
The Federal Reserve’s statement this week added a line that “exports have weakened,” signaling the global slowdown and the protectionist conflict between the U.S. and China is becoming a bigger worry. The OECD was practically despondent in its latest forecasts, cutting its global growth outlook to below 3% and warning that the escalating tensions are taking an increasing toll on confidence and investment.
It’s the uncertainty more than the tariffs that are the killer so far, with companies reluctant to commit to spending in an environment where visibility is unusually low. That’s a point made by Bloomberg Economics this week, in an analysis summed up by the line “the tweet has been mightier than the tariff.”
Here’s what some of the world’s top central bankers have been saying:
- Federal Reserve: If Chairman Jerome Powell didn’t give the market the clarity it craved on the interest-rate outlook, the same can’t be said of his view on trade uncertainty. It’s having an effect on investment and exports, developments have been “quite volatile,” and the risks are “heightened.”
- European Central Bank: President Mario Draghi spoke of the “persistence of downside risks of trade” when he unveiled new monetary stimulus last week. Worryingly, the baseline forecasts don’t include a no-deal Brexit or even some of the trade escalation that’s taken place since August.
- Bank of Japan: It sees a weaker export performance and said “downside risks concerning overseas economies seem to be increasing.” Among the reasons were U.S. macroeconomic policies, protectionism and Brexit.
- Norges Bank: Even the last hawk, which raised rates on Thursday, is aware that the tensions could mean the end of its current tightening cycle. There is “increased uncertainty and slightly slower growth internationally,” Governor Oystein Olsen told Bloomberg.
So far, the slowdown is largely confined to manufacturing, but if the narrative stays gloomy then it’s a concern that those companies that rely on a chipper consumer. Last word to Ed Bastian, CEO of Delta Air Lines:
“The thing that I worry most about is that everyone gets obsessed with wondering when the next recession is going to occur, and we talk ourselves into one.”
Charting the Trade War
The trade spat between Japan and South Korea is taking a toll on the Japanese tourism industry. Relations, already fragile, were further undermined after Japan imposed export controls on South Korea in July that led to reciprocal trade curbs and a consumer boycott. Korean visitors plunged by almost half in August, dragging down overall arrivals to Japan for only the second time in six years.
Today’s Must Reads
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- Irish Warning | Ireland’s government poured cold water over the optimism for a deal that followed remarks by European Commission President Jean-Claude Juncker.
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- Climate Change | A global protest movement backed by 16-year-old activist Greta Thunberg is underway.
- Detained Delivery | A FedEx Corp. pilot was temporarily detained in China, where the company has been under particular scrutiny.
Economic Analysis
- Changing Gears | As the trade war shifts, so too are China’s policy makers
- French Risks | The euro area’s second-largest economy is at risk from trade threats
Coming Up
- Sept 23/24: IHS Markit manufacturing PMI from Germany, U.S., Japan
- Sept. 24: German Ifo business confidence
- Sept. 24-30: The General Debate of the UN General Assembly
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