REAL SECTOR | Trade war threatens to derail stellar global growth momentum A complete GDP dataset revealed that global growth lost some steam in the fourth quarter of 2017, despite remaining robust overall. The global economy expanded 3.4% annually in Q4, which was a notch below both the 3.5% rise estimated last month, and the 3.5% expansion recorded in Q3 2017. The slightly lower figure was the result of weaker-than-expected growth in Latin America, particularly in Brazil. Conversely, newly released GDP data for India came in above market expectations. Data for Q1 signals that the economy continues to sail smoothly, propelled by largely accommodative monetary policies, tight labor markets and robust global trade. Against this backdrop, our analysts expect the global economy to expand 3.5% in Q1 on improved dynamics in both advanced and emerging market economies. Despite the solid economic backdrop, the threat of rising protectionism has dominated headlines in recent weeks. Notably, the United States announced on 22 March its first set of punitive actions against China by proposing tariffs on up to USD 60 billion of imports from the Asian giant. Although China showed readiness to retaliate by announcing tariffs on USD 3.0 billion of goods, the U.S. decision leaves room for negotiation before implementation, an opportunity Beijing is unlikely to ignore in a bid to prevent further escalation. The risk remains that if negotiations fail, U.S. protectionism will spiral out of control and cause an all-out trade war with China, which would harm both economies and throw a wrench in the works of the global economy. The U.S. decision to impose trade restrictions on China came only two weeks after the Trump administration announced tariffs on steel and aluminum products, citing national security grounds under Section 232 of the Trade Expansion Act. That said, many economies were given temporary exemptions before the tariffs came into force on 23 March, including the European Union and NAFTA partners Canada and Mexico. Negotiations over the North American trade agreement are still ongoing, and, although progress is painfully slow, the U.S. recently softened its stance on rules of origin in an unexpected sign of goodwill. All told, while the U.S. has turned more belligerent on the trade front in recent weeks, it has also taken a less aggressive stance in some areas. On a more positive note, eleven countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Global
Note: GDP, real annual variation in %, Q1 2015 - Q4 2019.
Note: GDP, evolution of 2018 and 2019 forecasts during the last 18 months. FOCUSECONOMICS Summary FocusEconomics Consensus Forecast |
- 3 April 2018 partnership (CPTPP) on 8 March, a trade liberalization deal that removes most tariffs for a bloc representing nearly 500 million people and more than 13% of global trade. The bloc—from which the United States withdrew last year—should stir trade flows across the Pacific and fuel stronger economic growth in all the countries involved. The CPTPP is expected to go into effect two months after most of the participants have domestically ratified the agreement. In the European Union, a whirlwind of political news has kept analysts on their toes. On 4 March, parliamentary elections in Italy yielded a hung parliament, with anti-establishment parties gaining over half of the seats and traditional parties being relegated to a state of political limbo. Despite signs of rapprochement between the North League and the 5-Star Movement, the country is unlikely to find a way out any time soon, heralding a period of political uncertainty ahead. Conversely, Germany put an end to over five months of political gridlock following the formation of the second consecutive alliance between the Social Democrats and Angela Merkel’s Christian Democratic Union. Ongoing negotiations over Brexit have also grabbed headlines, with a draft withdrawal agreement reached on 19 March finally signaling progress in EU-UK talks. The draft establishes a transition period that will kickstart once the UK leaves the EU in March 2019 and last until 31 December 2020. This should provide more certainty to businesses and prevent an outflow of capital from the UK, although thorny issues remain largely unaddressed, mainly regarding the border with Northern Ireland.
OUTLOOK | Global economy to accelerate marginally this year despite growing protectionism fears The sweet spot in which the global economy finds itself could quickly come to an end amid rising trade disputes between China and the United States. While the trade war appears to be circumscribed to these two countries for now, further antitrade measures against economies with large trade surpluses against the U.S., particularly the European Union, remain a possibility. Should these fears materialize, the ongoing stellar global trade cycle could sharply slow, hitting economic growth worldwide. Moreover, central banks are adopting a more hawkish tone in response to reduced economic slack which is beginning to push up inflation. Less accommodative monetary policies by key central banks could tighten financial markets and add downward pressure to global economic growth. FocusEconomics panelists expect the global economy to grow 3.4% in 2018, which is unchanged from last month’s estimate and would represent the strongest rate in seven years. In 2019, the global economy is seen decelerating slightly, to 3.2% growth. Although the 2018 GDP growth projection was unchanged from last month’s report, the economies of the Euro area and the United States both saw upgrades to their growth estimates. Growth prospects for Canada, Japan and the United Kingdom were left unchanged.
4 April 2018 Among developing nations, China’s resilient economic growth, a strong global trade cycle and improving dynamics in India are shoring up economic activity in the Asia (ex-Japan) region. Eastern Europe, meanwhile, is benefiting from the ongoing economic recovery in Russia, solid growth among some key regional economies such as Romania and Turkey, and robust dynamics in the European Union. While the economic outlook in Latin America appeared to be more stable in recent months, political uncertainty in some countries continues to dent the region’s growth projections. Despite mounting geopolitical risks and economic imbalances, the outlook in the Middle East and North Africa, and in Sub-Saharan Africa, are gradually improving on the back of a higher commodity price environment.
Report and Data from FocusEconomics.