Summer holiday reading for our 'fermeture annuelle'
The IMF released its update to the April World Economic Outlook last week. Here are some edited highlights:
Global growth is forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020 (0.1 percentage point lower than in the April WEO projections for both years).
Investment and demand for consumer durables have been subdued across advanced and emerging market economies as firms and households continue to hold back on long-range spending. Accordingly, global trade, which is intensive in machinery and consumer durables, remains sluggish.
The pressing needs include reducing trade and technology tensions and expeditiously resolving uncertainty around trade agreements
One might read the report as a call for the US to retreat from its America First policies, as a plea for support for international institutions such as the WTO (and by implication the IMO itself) and as encouragement for the European Central Bank to loosen monetary policy further to support the EU during Brexit uncertainty. All laudable aims no doubt, but all open to discussion.
US GDP growth for 2Q19 was reported on Friday at 2.1%. That’s down from 3.1% in the first quarter. Is that bad, because it’s a decline, or still pretty good as it outperformed expectations? US GDP is 70% composed of consumer spending, which rose 4.3% in 2Q, offsetting the 5.5% fall in business spending. Commentators are saying that previous fears of recession were overstated and that the economy is at least a year away from a recession. Employment growth remains strong but as input costs, especially oil prices, remain low, inflation is under control. That keeps a lid on interest rates and on wage inflation. The President has a good chance of delivering increased personal prosperity in the run up to his re-election campaign. Voters may well be prepared to overlook the kinks in his character when the policies favour them so directly. The IMF’s prayers are probably going unanswered.
The ECB is more closely aligned with the IMF’s policy recommendations, having signalled on Thursday last week that borrowing costs will not rise until at least mid-2020 and may yet fall, though the bank’s headline deposit rate is record -0.4% already. The ECB has also indicated it may restart QE, buying up bonds in order to inject cash into the eurozone. The ECB stance is unlikely to change as Christine Lagarde, outgoing head of the IMF, takes over in October from Mario Draghi at the ECB.
The dash to low interest rates is spreading. Turkey cut rates last Thursday and the Australian central bank chief says he stands ready to cut rates further if two consecutive cuts already made don’t sufficiently promote spending. China is always ready to adjust fiscal and monetary policy to support its economic strategy. But no interest rate cuts are thought to be imminent as it is weathering its trade spat with the US rather well, as we have reported several times here. The Bank of Japan starts a two-day policy meeting today, having pledged in April to keep interest rates “extremely low” until at least Spring 2020. The short-term rate is currently -0.1%. We don’t expect any further cuts, which some analysts are saying means the Bank recognises its main monetary tool is running out of road.
The Take Away
No doubt there are headwinds to growth and trade at the moment. And certainly one could argue that these stem mainly from the current US attitude to its neighbours, friends and enemies around the world. But that is to put too much emphasis on one country, whose president has some justification in telling other leaders to put their own houses in order before casting aspersions at him. But from the perspective of the shipping industry, things aren’t so bad. The BDI has reacted well to China’s softening of steel production caps. The tanker markets have survived the disruption caused by the interruption of Venezuelan, Iranian and Libyan output. Liner companies and port operators report that volumes are holding up better than they expected. Perhaps we should take the opportunity August offers to defocus briefly, the better to sharpen our focus next month.
To that end. Macro Macchiato is heading to its dacha with a trunk full of books for its fermeture annuelle. If you’re after recommendations for holiday reading, here is some of what we are taking:
Sapiens: A Brief History Of Humankind, by Yuval Noah Harari, and its follow-up, Homo Deus: A Brief History Of Tomorrow. These are four and two years old respectively, but we’ve been too busy to get them off our bookshelves.
War By Other Means: Geoeconomics And Statecraft, by R D Blackwill. This was one of Foreign Affairs’ best books of 2016, so we are late to the party again, but looking forward to this book-length update of von Clausewitz’s aphorism.
The Creative Curve: How To Develop The Right Idea, At The Right Time by Allen Gannett. Published last year, this is a data-driven exercise in finding out how to commercialise good ideas. Many readers report it to have been inspiring.
The Globotics Upheaval: Globalization, Robotics, And The Future Of Work, by Richard Baldwin. I don’t much like the portmanteau word in the title which required explication after the colon. But we live in a world of digital disruption already. We have to decide whether to disrupt or be disrupted. To avoid the latter, we need to inform ourselves. Hopefully this book will help.