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Apr 10, 2019

Real Time Economics | Is the Economy in a ‘Delicate Moment’ or a ‘Good Place?’

The Wall Street Journal.
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Real Time Economics
The IMF's outlook dimmed, Boeing's 737 sales dried up, and Brexit faces another pivotal day. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

'Delicate Moment'

The International Monetary Fund cut its forecasts for global economic growth. Nearly the entire world economy is stumbling amid trade tensions and tariff hikes between the U.S. and China, a decline in business confidence, tighter financial conditions, and higher policy uncertainty. "This is a delicate moment for the global economy," said IMF Chief Economist Gita Gopinath.
The IMF’s latest economic forecasts cut the outlook for growth in 2019 to 3.3% from estimates of 3.5% in January and 3.7% in October. Economic growth appears on course to slow nearly everywhere: forecasts dropped 0.5 percentage points from January for Germany, Italy and Mexico, 0.6 points for Latin America as a whole, 0.4 points for Canada, 0.3 points for the U.K., and 0.9 points for the Middle East, Josh Zumbrun reports.

‘Good Place’

Through much of 2018, the U.S. had been an outlier, posting strong growth while the rest of the world stumbled. Now it's clear the U.S. is slowing too. Gross domestic product advanced at a 4.2% pace in the second quarter of 2018 but then tapered off. For all of 2018, the economy grew 2.9% from a year earlier. The IMF forecasts 2.3% this year and 1.9% next.
  • Despite the slowdown, the Federal Reserve has been relatively upbeat. "The U.S. economy is in a good place," Chairman Jerome Powell said just last month. 
  • Suttle Economics's Phil Suttle explains: "The new Fed mantra has been that the US economy is 'in a good place;' the new IMF mantra is that the global economy is at a 'delicate moment'—a bit more pessimistic, but also reflective of the major concern that the most challenging aspect for the global economy at the moment is that populist governments will (continue to) act like bulls in a china shop."

What to Watch Today

The European Central Bank releases a policy statement at 7:45 a.m. ET, and ECB President Mario Draghi holds a press conference at 8:30 a.m. ET.
European Union leaders meet in Brussels to discuss an extension beyond April 12 for Britain's exit from the EU.
The U.S. consumer-price index for March is expected to rise 0.3% from a month earlier. Excluding food and energy, prices are forecast to rise 0.2%. (8:30 a.m. ET)
The Federal Reserve releases minutes of its March 19-20 meeting at 2 p.m. ET. Look for details on views toward the economy, inflation and the Fed's balance sheet. Read Nick Timiraos's preview here.
The U.S. budget deficit for March is expected to narrow to $149 billion from $208.7 billion a year earlier. (2 p.m. ET)
Fed Vice Chairman Randal Quarles speaks at a Financial Stability Board roundtable at 11:50 a.m. ET, and the Dallas Fed's Robert Kaplan speaks in a moderated conversation with former Fed Chairwoman Janet Yellen at 7:05 p.m. ET.
China's consumer-price index for March is out at 9:30 p.m. ET.

Top Stories

Greetings From Washington, D.C.

The annual meetings of the International Monetary Fund and World Bank are under way this week, with Group of 20 finance ministers also gathering on the sidelines. While officials often make major statements at these meetings, this spring could be a time to lay low. First, the U.S. is getting close to resolving its dispute with China, and nobody wants to rattle that cage. The European Union and U.K. are preoccupied with Brexit. The World Bank has already made major news, with the selection of a new president. And the Japanese, rarely instigators of international drama, are chairing the G-20 and pursuing a quiet agenda. Still, we'll hear a lot of chatter from major officials before the week is over, so one never knows. —Josh Zumbrun
The meetings take off in earnest Thursday with IMF Managing Director Christine Lagarde's 9:30 a.m. ET press conference.

Boeing Sales Stall

Boeing didn’t book any commercial orders for its 737 jetliner in March, the first month without a sale of the aerospace giant’s best-selling aircraft in almost seven years. The disclosure highlights the mounting uncertainty among customers, Boeing investors and suppliers about when the new MAX version of the 737 might return to flight following the global grounding of the plane after two fatal crashes, Doug Cameron reports.
Reminder: JP Morgan estimates the 737 MAX accounts for one-quarter of domestic U.S. aircraft production. If production is halted, that would take about 0.6 percentage point off the quarterly annualized growth rate of GDP in the quarter in which production is stopped, bank economists Michael Feroli and Daniel Silver say.

This Isn't What It Looks Like

The Trump administration sought to play down the broader significance of a new plan to impose tariffs on $11.2 billion in imports from the European Union. The Trump administration has previously imposed tariffs on European steel and aluminum, and President Trump has threatened similar duties on EU cars. But officials say the latest move is part of a distinct dispute over aviation subsidies rather than an effort to apply pressure in fraught negotiations toward a possible EU trade deal, William Mauldin and Josh Zumbrun report. 

EU Strong-Arms China

The U.S. isn't the only one bothered by China's industrial policies. A European Union-China summit in Brussels Tuesday was meant to bolster cooperation, especially against controversial policies of President Trump. Instead, it is highlighting differences, led by growing trade tensions. Europe pressed China on unfulfilled promises. China agreed with the EU to end forced technology transfers and strengthen international rules on industrial subsidies. But, the WSJ's Emre Peker asks, will China deliver?

Hope for the Best...

European Union leaders are preparing to grant British Prime Minister Theresa May more time to win backing for an agreement to leave the bloc. Mrs. May has asked for a second delay in Brexit until June 30. Were the EU not to grant an extension, the U.K. could leave the bloc without a deal as soon as Friday, raising the prospect of significant economic damage for Britain and some EU economies. EU leaders appear ready to grant an extension but haven’t settled for how long. European Council President Donald Tusk said he believes an extension of at least a year remains a good option, Laurence Norman and Stephen Fidler report.

...Plan for the Worst

Treasury Secretary Steven Mnuchin said a disorderly Brexit would likely cause significant market and trade disruptions. “We need to be prepared for a hard Brexit as a very realistic outcome,” Mr. Mnuchin told lawmakers Tuesday. He emphasized he has been working closely over the past two months with financial regulators to ensure U.S. banks are prepared, Kate Davidson reports.

U.K. Economy Chugs Along

The U.K. economy grew at a slow but steady pace in the three months through February, aided by a pickup in demand for British-made goods from buyers nervous about the effect on supplies of Brexit. Gross domestic product advanced at a 1.1% annualized rate from December through February, Jason Douglas reports.

Sinking Cain

Senate Republicans sound increasingly doubtful about confirming Herman Cain, President Trump’s latest pick for the Federal Reserve Board.
“It’s hard for me to imagine he’d be confirmed.” —Sen. Kevin Cramer (R., N.D.)
“Everything I’ve seen so far looks like it’s got an uphill climb.” —Sen. Mike Braun (R., Ind.)
“The White House needs to consult with the Senate before they make nominations because it’s not a given that everybody they nominate is going to be confirmed.” —Sen. John Cornyn (R., Texas)
"I think Mr. Cain while he’s a friend and a fine person is far too much of a partisan to be in that role.” —Sen. Mitt Romney (R., Utah)

What Else We're Reading

About 2.3 million young adults are out of work. "In theory, the path to employment providing financial security in adulthood is simple: finish high school, enroll in and complete college or training that is affordable and a good fit, gain some work experience along the way, and launch a career. But given that 17% of young adults ages 18 to 24 are out of work in mid to large cities in the U.S....this path does not appear to work equally well for all," the Brookings Institution's Martha Ross and Natalie Holmes write in a new report.
China began restricting commercial logging in its own natural forests two decades ago. Domestic supply was constrained, demand was not. Now: "From the Altai Mountains to the Pacific Coast, logging is ravaging Russia’s vast forests, leaving behind swathes of scarred earth studded with dying stumps,"  Steven Lee Myers writes in the New York Times.

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