© Franz Mahr/World Bank
September 26, 2018//-Global economic growth appears to be losing some steam in third quarter (Q3) following Q2’s strong result.
This is a view expressed by FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the Americas.
A strengthening U.S. dollar and higher borrowing costs are unnerving financial markets in developing economies, while rising trade protectionism is starting to weigh on business sentiment, it stated in its October 2018 report.
“Moreover, economic dynamics are softening in China and the Eurozone. On the flip side, the U.S. economy continues to fire on all cylinders, while Japan is holding up relatively well due to strong investment”, the report added.
A GDP growth estimate for the global economy projects year-on-year growth at 3.3% for Q3. While the print was a notch below the result from the previous period, it matched last month’s forecast.
The escalation in the ongoing trade war between China and the United States topped the headlines in recent weeks. On 24 September, the U.S. enforced a 10% tariff on USD 200 billon of Chinese products, which will rise to 25% on 1 January.
President Trump also warned that the U.S. will pursue additional levies on USD 267 billion of Chinese imports if Beijing retaliates against “our farmers, ranchers and industrial workers”. Nevertheless, China immediately fired back with tariffs of between 5% and 10% on USD 60 billion of U.S. goods imported into China.
The direct impact of these tariffs is expected to be rather limited given that they only represent around 1.5% of global trade, while some of the production could be quickly diverted to other countries, especially in Asia, according to economists at FocusEconomics.
However, a worsening trade environment could have an impact on business sentiment, deterring global investment and affecting supply chains. Moreover, it could also exacerbate economic imbalances in China as authorities once again rely on investment and lending to rekindle economic growth, they added.
The recent selloff in emerging markets has stressed the vulnerability of some countries to sudden changes in capital outflows. Argentina and Turkey were particularly affected by the financial turmoil, with both countries nearing full-blown exchange-rate crises, and sharp currency depreciations occurred across most developing economies ranging from Brazil to India and South Africa.
That said, the consequences are expected to greatly diverge, especially hitting those with large current account deficits and/or high exposure to external borrowing.
In Europe, Brexit negotiations between the European Union and the United Kingdom remain at an impasse after the European Union rejected the UK’s Chequers plan at the 20 September meeting in Salzburg.
The president of the European Council, Donald Tusk, stated that Theresa May’s proposal “risks undermining the single market”. The UK prime minister now has until 18 October to present an alternative plan and the possibility of a no-deal Brexit increases as each day passes.
African Eye Report
