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MONEY MATTERS

Global economic slowdown in 2019 a healthy necessity

LONDON, January 6, 2019

Global economic growth is likely to slow down this year led by the US and China, a development that is both necessary and healthy, according to a report released today by S&P Global Ratings, titled " Global Economic Outlook 2019: Autumn Is Coming."

Overall, the rate of expansion for the economy will fall to 3.6 per cent from a six-year high of 3.8 per cent in 2018, said a report.

"Most of the action will come from the US," remarked Paul Gruenwald, the chief economist for S&P Global Ratings.

"The drivers will be the waning fiscal stimulus from personal and corporate tax cuts, as well as the continuation of the gradual rate normalisation by the Federal Reserve," stated Gruenwald, who sees a chance that the Fed turns more dovish after the recent rout in the US equity markets and some weakness in the macro data.

He pointed out that China's growth story would likely be less dramatic than that of the US.

The authorities have taken a number of policy-easing measures, including lowering the reserve requirement for smaller banks and enacting fiscal stimulus in the form of ramped-up infrastructure spending.

This mild stimulus will cushion the slowdown, resulting in a continued steady decline in reported growth and a lowering of the official target in 2019 from around 6.5 per cent this year, he added.

According to S&P report, the growth in Europe will continue to decline this year with domestic demand the main driver of activity. Consumption will benefit from falling unemployment, rising wages, and lower energy prices, it stated.

"The weakness in the third quarter of 2018 was temporary, in our view (with the German economy contracting, weighed down by a sharp decline in automobile production), and we are forecasting growth of 1.6 per cent for 2019, from 1.9 per cent last year," explained Gruenwald.

The risks to the baseline forecast are on the downside. "Worries include the entrenchment and expansion of the US-China dispute, as well as market turbulence related to the path of interest rate normalisation by the US Federal Reserve," said the top official.

"Brexit and Italy's fiscal woes may have an impact, but remain regional risks for the most part," he added.

On the US-China trade war, S&P said a good outcome is possible as long as the main actors change their mindset.

For the US, this means a pivot from imposing broad-based tariffs against China to starting a new Strategic Economic Dialogue (the framework used under former US President George W. Bush). For China, this means recognizing that the country's economic model creates frictions with the existing global order, stated the report.

"The summer season of a 2017 synchronised global upturn may be behind us, but it doesn't follow that winter is coming," it added.-TradeArabia News Service




Tags: Ratings | Economic Slowdown | S&P Global |

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