Global Outlook Takes More Hits as Central Banks Stay Patient

David Goodman

07 Apr 2019, 02:23 PM IST

(Bloomberg) --

The first week of the second quarter brought more bad news for the global economy and further evidence that central bankers are hitting pause — or even rewind — on their tightening plans. Still, amid the darkening outlook, progress in trade talks are providing a glimmer of hope.

Here’s our weekly wrap of what’s going on in the world economy.

Clouds Gather

The World Trade Organization became the latest body to slash its outlook, cutting its global trade growth projection to the lowest level in three years as it cited the impact of rising commercial tensions and tariffs. On a more local level, Italy is preparing to downgrade its forecasts, Germany’s five leading research institutes now see the nation’s economy expanding by less than half the rate previously expected this year, while the Asian Development Bank cut its estimates for India and Southeast Asia and the World Bank slashed its forecast for Latin America. That’s ahead of the IMF’s new set of predictions next week, with Christine Lagarde already warning that global growth has lost momentum, leaving the economy in a “ precarious” position.

More immediate data points also made for grim reading. A report in the U.K. showed the huge services sector shrank for the first time in more than 2 1/2 years, highlighting the damage Brexit turmoil is inflicting on the economy, while the euro area’s factory slump intensified and U.S. retail sales fell. Still, U.S. hiring rebounded more than forecast in March and the prior month was stronger than first reported, potentially relieving some concerns about a cooling economy.

Global Outlook Takes More Hits as Central Banks Stay Patient

Central Banks Hit Pause

As our comprehensive global wrap shows, policy makers around the world are responding to the bleaker outlook by taking to the sidelines or even becoming dovish again. The Reserve Bank of India led the way this week, delivering its second successive interest rate cut and saying it stands ready to use all tools available to it to ensure liquidity in the banking system. The prospect of an extended period of low rates is worrying some European Central Bank officials, while Bank of England Governor Mark Carney has his own reasons for caution, saying that the risk of a no-deal Brexit is now “alarmingly high.” Meanwhile in the U.S., there is some concern that the Federal Reserve risks stoking asset bubbles with its new-found eagerness to fan inflation.

Trade-Talk Progress

Amid the gloom, there is some optimism that one obstacle to growth may be lifted. China and the U.S. claimed progress in Washington talks to end their trade war, with President Xi Jinping pushing for a rapid conclusion and President Donald Trump talking up prospects for a “monumental” agreement, though a final deal may still be some weeks away. Drafts of the agreement being crafted would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to people familiar with the talks.

In less positive news, European Union ambassadors put off giving the green light for trade talks with the U.S. as France continues to withhold its consent. Meanwhile, the Trump administration is examining options for shutting entry points to the U.S. from Mexico in case the president follows through with his threat to close the border, a risk that’s this week pushed the price of one Mexican delicacy up by the most in a decade. Canada is ratcheting up pressure on the U.S. to lift tariffs on steel and aluminum — threatening to hold up the new continental trade deal and change up its own retaliatory tariffs to have a bigger impact.

Chart of the Week

Patience Is Golden as Central Bankers Hit the Pause Button

To contact the editor responsible for this story: Zoe Schneeweiss at zschneeweiss@bloomberg.net, Fergal O'Brien

Global Outlook Takes More Hits as Central Banks Stay Patient