BENGALURU (Reuters) - A synchronized global economic slowdown is under way and any escalation in the U.S.-China trade war would trigger a sharper downturn, according to Reuters polls of hundreds of economists from around the world.
That is a major shift in sentiment from just a year ago, when economists were optimistic about a significant global upturn. But an escalation in trade tensions and tightening financial conditions have hurt activity in most economies and dragged China's growth last year to the weakest in 28 years.
Reuters surveys over the past two years have repeatedly highlighted trade protectionism as one of the prominent downside risks for the global economy.
In the latest Reuters polls of more than 500 economists taken this month, growth this year was cut for 33 of 46 economies the respondents were asked about and left unchanged for 10. Predictions for only three smaller economies were marginally upgraded.
The outlook for inflation this year was trimmed for most economies too, with lower lows and lower highs.
Over half of nearly 270 economists who answered an additional question said a further escalation in the U.S.-China trade war will likely trigger an even sharper global economic slowdown this year.
With a March 1 deadline set by the White House for an agreement or risk of an escalation of tariffs on another $200 billion worth of Chinese goods, both U.S. President Donald Trump and Chinese President Xi Jinping are still far apart on key structural elements critical for a deal.
Those concerns coincide with a growing sense of unease among market experts polled by Reuters who have consistently lowered their forecasts for various asset prices over the past few months, from stock indexes to bond yields to oil.
"Irrespective of the 'truce' between Presidents Trump and Xi at their December meeting, trade frictions are likely to weigh on activity in 2019," noted Janet Henry, global chief economist at HSBC.
"Further tariff increases have been postponed, but there has been no mention of the existing tariffs being lifted and the possibility of U.S. tariffs being imposed on autos is still on the table."
Despite a 90-day truce reached in early December and Trump saying trade talks with China are going well, concerns over the conflict have continued.
"Don't tell me anyone is really buying the drivel that a 'great deal' is imminent between the U.S. and China on trade, we are in the early stages of a new Cold War," noted Jan Lambregts, global head of financial markets at Rabobank.
The global economy is forecast to expand 3.5 percent this year, the second straight cut to the 2019 outlook after it was downgraded in the previous survey for the first time since polling began for that period in July 2017. In the last poll it was 3.6 percent.
That 3.5 percent lines up with the International Monetary Fund's growth outlook released ahead of the World Economic Forum in Davos, which highlighted the challenges policymakers face as they tackle the risk of a serious slowdown.
Major central banks, too, have changed tack on their monetary policy path as they wind down crisis-era measures while still facing an array of daunting risks.
Despite predicting two rate hikes this year, in line with the Federal Reserve's own dot plots, economists now expect the U.S. central bank to take rates higher in the second quarter instead of the first, with a significant minority forecasting either one hike or none.
A sharp slowdown in euro zone economic growth became more prominent after Europe's top economy, Germany, barely skirted a recession in the second half of last year. That has increased the prospect for policy normalization to be delayed.
"Global growth looks set to fall to its weakest pace since the financial crisis as slowdowns in the euro zone and China continue and the U.S. soon joins the mix," said Andrew Kenningham, chief euro zone economist at Capital Economics.
"U.S. monetary policy tightening is pretty much over and the ECB seems set to miss the boat altogether in this cycle. Indeed, it won't be long before policy loosening comes back on the agenda."
But it is not just developed economies. Growth in emerging markets were also forecast to take a hit this year.
And in an extraordinary U-turn in policy, the Reserve Bank of India was forecast to cut interest rates by mid-year, compared to a rate hike predicted just a month ago.
"Markets are rightly still alert to the potential for a bigger growth hit from the trade frictions, but fears regarding the inflation outlook have eased back since early October," added HSBC's Henry.
"The broader question is when considering how to respond to another economic downswing is which countries can increase leverage even as others are forced to retrench."
(For other stories from the Reuters global long-term economic outlook polls package see)
(Analysis and additional reporting by Indradip Ghosh and Mumal Rathore in Bengaluru; Polling and reporting by the Reuters Polls team in Bengaluru and bureaus in Shanghai, Tokyo, London, Milan, Paris, Oslo, Istanbul, Johannesburg, Toronto, Brasilia, Mexico City, Lima, Buenos Aires, Bogota, Caracas and Santiago; Editing by Ross Finley and Alison Williams (NYSE:WMB))
"Mitch McConnell Got Everything He Wanted. But at What Cost?" [...] McConnell went through the motions of fully blaming Pelosi, as he did on the Senate floor that morning, displaying a poster with two identical pictures of a Southern border wall, one labeled “PRES. OBAMA” and the other “PRES. TRUMP,” under a legend reading, “WHAT BORDER FENCING DO DEMOCRATS SUPPORT?” But he knew as well as anyone that he had in fact negotiated at least a temporary escape from the looming shutdown with Paul Ryan, then the House speaker, in December, which would have funded the government through February, before “the president, let’s just say, changed his mind,” Ryan told me this month, laughing ruefully. “I spoke to him and tried to get the plan back on track, but that just wasn’t in the cards. And here we are.” https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146331494
When President Trump delivered his State of the Union address on Tuesday, he could quite justifiably say that the state of the economy was good.
Unemployment is low, inflation is muted and growth has continued unabated for nearly 10 years. As a college professor, I’m often drawn to giving letter grades, and would give the United States economy an A-, with the potential for a better grade if the economic gains had been distributed more evenly.
But Mr. Trump controls economic policy, not the economy, and so a fairer report card would also assess his actual policies.
To provide a nonpartisan appraisal, I’ve reviewed surveys of about 50 leading economists .. http://www.igmchicago.org/igm-economic-experts-panel .. — liberals and conservatives — run by the University of Chicago. What is startling is that the economists are nearly unanimous in concluding that Mr. Trump’s policies are destructive. That is why many economists are uneasy about his presidency, even though the economy earns solid grades.
The United States started a trade war with China and China quickly retaliated, raising tariffs on American-made goods. Mr. Trump also created needless uncertainty with his threat to rip up the North American Free Trade Agreement that binds the United States, Canada and Mexico. The threat yielded a substitute deal that market economists believe .. http://projects.wsj.com/econforecast/?standalone=1#e=1539204877455&qa=20181001002 .. will do little more than replicate the previous one, and it is unclear that Congress will pass it.
The logic of fiscal policy is straightforward: In good times, the government should spend less, so that in bad times it can afford to spend more and tax less, helping to support an ailing economy. When private-sector demand falls, government picks up the slack.
On this score, Mr. Trump’s fiscal policy is a colossal failure. His signature achievement is a $1.5 trillion tax cut that provided stimulus when, arguably, it was least needed. As a result, the budget deficit .. https://www.cbo.gov/system/files/2019-01/54918-Outlook-VisualSummary.pdf .. is atypically high for a healthy economy, and rising government debt will make it hard for fiscal policy to provide a boost when the next downturn hits.
Mr. Trump might argue that the point of the tax cut wasn’t to provide a short-term stimulus, but rather to promote long-term economic growth. However, economists say that it will fail to do that, too. In a survey .. http://www.igmchicago.org/surveys/tax-reform-2 .. before the bill was passed, all but one expert said the tax cut wouldn’t lead gross domestic product “to be substantially higher a decade from now.” Darrell Duffie, the lone dissenter, said it would boost growth, but he added that “whether the overall tax plan is distributionally fair is another matter.”
The problem, according to Daron Acemoglu, a prominent macroeconomist, is that while “simplification of the tax code could be beneficial,” that effect would most likely be “more than offset by its highly regressive nature.” Recent data support this pessimism, as the much-promised investment boom the tax cut was supposed to deliver appears not to have materialized.
It is worth noting that the one part of Mr. Trump’s platform that received a strong endorsement from economists .. http://www.igmchicago.org/surveys/infrastructure-spending .. — his promise of infrastructure spending — has languished, despite the possibility of bipartisan support.
For a president, monetary policy should be simple: Appoint good people, and let the Federal Reserve do its job. Mr. Trump has got half of this right. Jerome Powell, his pick for Fed chairman, has so far proven to be adept. In a recent survey .. http://projects.wsj.com/econforecast/?standalone=1#e=1544648531021&qa=20181201001 , 43 percent of economists gave Mr. Powell’s leadership an A, and 51 percent gave him a B (with the remaining 6 percent giving him a C). Mr. Trump’s other Fed appointments have been mainstream, yielding a cast of policymakers that Jeb Bush might have appointed had he been elected president.
Mr. Trump isn’t just pushing against one or two threads of economic consensus. Instead, his program is an almost complete repudiation of the orthodoxies endorsed by Democratic and Republican economists.
Put the pieces together, and all of this presents a puzzle: If economic policy is so bad, why is the economy doing so well? Subscribe to With Interest
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Perhaps it reflects good luck rather than good judgment. Mr. Trump’s luck was to inherit an economy that had been on a steadily improving glide path since around 2010. Charting nearly any economic statistic shows that today’s economic strength represents a continuation of that trend.
--- That one posted earlier here - ForReal, putting aside Trump's claim that global warning is a Chinese hoax and his pulling out of the Paris agreement; putting aside his putting more Americans into a no healthcare insurance position; and putting aside his delaying the implementation of added sanctions against Russia for months after they were passed in Congress (that certainly smells of going soft on Russia); and putting aside Pruitt's EPA environmental neglect - and his latest - EPA's Pruitt unveils controversial limits to scientific research [...] Presidents Have Less Power Over the Economy Than You Might Think https://investorshub.advfn.com/boards/read_msg.aspx?message_id=140290102 ---
The more frightening explanation is that the downside of Mr. Trump’s policies are yet to become evident. The chaos of his administration’s policy process has created uncertainty and probably scared off some investors, although their absence is difficult to measure. In addition, Mr. Trump’s unfunded tax cuts are creating a debt that future generations will have to repay. And by undermining the Fed’s independence, he may have made it less effective at fighting inflation.
That’s not all.
Cutting regulations in the financial sector may help big banks today, but it could increase the chances of future financial crises. Eliminating environmental regulations has probably improved results for some businesses while speeding climate change. And while impeding immigration may have reduced competition for jobs, many economists .. http://www.igmchicago.org/surveys/immigration .. worry that in the longer run, reducing the number of immigrants will lead to less innovation and growth.
Of course, I should admit a final possibility: Perhaps Mr. Trump has got it right, and the economists have gotten it all wrong. As a card-carrying economist, I don’t believe this, but it seems that, in equal measure, Mr. Trump doesn’t believe what economists say, either.
Justin Wolfers is a professor of economics and public policy at the University of Michigan. Follow him on Twitter: @justinwolfers.
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