What Happened in the World Economy This Week and What It Means
What happened in the world economy this week and what it means.
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The trade tensions that have rattled the world economy appeared to cool this week as the main protagonists – U.S. President Donald Trump and Chinese President Xi Jinping – adopted more diplomatic stances.
The potential for a trade war and possible implications for global growth again top our weekly roundup of events in the world economy along with a recap of what central banks are thinking and why everyone is starting to worry about the euro area.
Trade Thaw
In warning Donald Trump against a “Cold War mentality” Xi Jinping reiterated pledges to open sectors from banking to auto manufacturing, a couple of days after Trump had said the two “will always be friends.” The U.S. President went a step further on Thursday, saying the two countries ultimately may end up levying no new tariffs on each other. He’s also directed officials to explore rejoining an Asia-Pacific trade pact he withdrew from shortly after taking office. While IMF Managing Director Christine Lagarde warned against the global trading system “being torn apart,” she expressed continued optimism about the economic outlook ahead of the Fund’s meetings next week. The World Trade Organization also predicted trade will grow 4.4 percent this year after 4.7 percent in 2017.
Read More:
- Trump’s ‘Art of the Deal’ Tactics Face Ultimate Test With China
- U.S.-China Talks Said to Have Stalled on High-Tech Industry
- Rare Synchronized Economic Upswing to Power Through Soft Patch
- Cars, Cows and a Half-Sunset: Here’s How Nafta 2.0 Could Look
- China’s ‘Belt & Road’ Gains Momentum From Kunming to Mombasa
- China Adds Flesh to Bones of Plan for Big Bang Financial Opening
- Beijing’s Answer to World Bank Says It ‘Isn’t Just About China
Central Banks Choose Sides
How would central banks respond if there was a trade war? The problem is such an event would likely cause a bout of stagflation in which demand weakened and inflation accelerated, leaving policy makers to decide which to combat. Bloomberg’s Matthew Boesler reported this week that in the case of the Federal Reserve it would likely focus on offsetting the hit to demand rather than the faster prices. Among those setting policy this week, Serbia and Mozambique cut interest rates, while Poland, Ukraine, Namibia, Uganda and South Korea stayed on hold. The Monetary Authority of Singapore, which uses the exchange rate as its main tool, tightened monetary policy, allowing its currency to strengthen in the face of solid economic growth.
Read More:
- Fed Leans Toward Faster Rate Hikes as Trade War Poses Risks
- World’s Longest Trial of Negative Rates Shows Lots of Positives
- BOJ Likely to Cut Easing Before Hitting Price Target, Momma Says
- Missing Ingredient May Foil Trump’s Goal for Faster U.S. Growth
- Trade Risks Aside, Singapore Central Bank Is Ready to Tighten
Europe Worries
More questions are being asked about the prospects of the euro area with industrial output in the region unexpectedly declining for a third consecutive month and investors turning negative on the economy for the first time since July 2016. Such reports added to signs that momentum slowed after growing at the fastest pace in a decade in 2017. Against that backdrop, European Central Bank officials rejected a push to declare that the conditions are almost in place to end their bond-buying program although President Mario Draghi and colleagues expressed cautious confidence in the outlook. Outside of the euro area, Britain’s economy may not be as strong as it looks as Brexit nears.
Read More:
- ECB Looks Down Stimulus Exit Path as Politics Threaten Economy
- Draghi Nagged by Unwelcome Distraction From Euro Area’s East
- ECB Considers Proposal for New Cash Line to Aid Bank Rescues
- Europe Is Ground Zero for Traders’ Synchronized-Growth Dilemma
- BOE May Have a Silent Dissenter to Interest-Rate Increases
Weekend Reading
- Austerity Advocate Rehn Stakes Claim to Seat on ECB Council
- London Home Prices Now Offer Clues for Buyers in New York, Tokyo
- Beautiful People May Merit Their Extra Pay: Eco Research Roundup
- To Visit America’s Richest Zip Code, First You’ll Need a Boat
- Robots Are Now Everywhere, Except in the Productivity Statistics
- ‘Dr. Debt’ Warns Canadians to Get Financial Houses in Order
- Ikea Prepares for Future of Mega Cities and ‘Thin Wallets’
- ‘Market Fundamentalism’ Tested as New Economic Storm Hits Russia
- Oops! Nigerian Statistics Head Tweets Inflation Data an Hour Early
Chart of the Week
To contact the editor responsible for this story: Zoe Schneeweiss at zschneeweiss@bloomberg.net, Lucy Meakin
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