The WTO slashed the growth forecasts for world trade this year to just 1.2%. In April, growth of just under 3% had been expected. Trade tariffs and business uncertainty led to a significant reduction in estimates in the latest update.
A "high degree of uncertainty" surrounding trade policy had led to a significant slow down in the first half of the year. The lack of progress in trade talks with China, is now yielding to the challenge of increasing tensions between Europe and the USA.
The ruling by the WTO, to award punitive tariffs of some $7.5 billion dollars to the US, as a result of the subsidies paid to the Airbus launch, won't help. Boeing had paid the price of EU support, now whisky, wine and olive oil could bear the burden of a price hike by way of redress. American consumers will once again pay the price of myopic moves by the Trump administration. The EU is advocating moderation for the moment. The WTO will rule on a counterclaim against Boeing in the months ahead.
In the UK, the latest survey from the British Chamber of Commerce confirms exports are sliding as Brexit uncertainty increases. Factory exports fell in the last quarter to the lowest for a "decade". Manufacturing has been affected by the continuing uncertainty of just what will happen next. The latest proposals from the Johnson administration will not help.
According to the latest deal, Northern Ireland is to remain inside the free trade area but outside of the customs union. A hard board is avoided, the Irish Sea will carry the tide for goods. On the Island of Ireland an invisible border will be created using new technology in which Artificial Intelligence will play a role no doubt. No thought of rules of origin. The "deal" is a lexicon of keywords, assembled without thought or order. The EU may smile politely, the Stormont veto, enough to kill off the deal.
We are leaving in less than four weeks according to the Prime Minister. Not according to the courts if the "Surrender Bill" is to be honored. The uncertainty grows and recession fears increase ...
UK Recession fears grow ...
This is the week in which markets brace for the latest release from the IHS Markit CIPS surveys. Manufacturing output fell for the fifth month in a row according to the latest data. The last time U.K. factories recorded five months of decline was in 2009 at the height of the financial crisis.
A global slowdown, trade tensions and uncertainty over Brexit were widely blamed for the set back. In similar data for the EU area, manufacturing output contracted at the steepest rate for seven years. Output in Germany was badly affected by the slow down.
Then came the construction data. UK construction is stuck in a "devastating downturn" according to the headlines. Output fell in September. The sector experienced one of the fastest declines in activity in more than a decade. A relentless six month decline in order books has resulted from Brexit uncertainty and political indecision, the explanation.
So what of the service sector? Services accounting for 80% of UK output, also fell in September. The index fell to 49.5, down from 50.6 in August. Markets had expected a slow down in the month but had expected output to remain above the critical 50 point level. The latest index data signalled a cut in activity and the biggest reduction in employment in over nine years.
The "All Sector Index" fell to 48.8 in the month from 49.7 in August. Fears are growing, the UK could be headed for recession in the face of continued Brexit uncertainty. The Bank indicated this week it would be prepared to act to cut rates if need be, too maintain confidence in the economy.
The Bank should be slow to act. More data is required before the MPC should make a move. The latest ONS data confirms the economy grew by 1.6% in the first half of the year. We still expect growth of around 1.2% for the year as a whole. The economy would experience a significant rebound if the Brexit uncertainty was lifted. Of this there would appear to be little prospect in the weeks ahead ... but for the moment, do not be too alarmed by the survey data.
U.S. Recession fears ease ...
In the U.S. markets were hit on news of a manufacturing set back around the world. The US data was mixed. The U.S. manufacturing PMI increased in September to a five month high. The improvement was a modest, "slight " improvement.
Expansion in production and new orders was of limited dimension. Business confidence remained gloomy due to muted demand conditions.
The index posted 51.1 in September, up from 50.3 in August. So why so gloomy? Any reading over 50 indicates continued positive growth. Markets fell on the news. The Dow lost 1,000 points in the mood swing, closing at 26,000 mid week. The S&P and Nasdaq closed 3% lower as the bears squeezed.
Then came the jobs data on Friday. 136,000 jobs were added to the payroll in September. The unemployment rate fell to 3.5%. Unemployment in the US has fallen to the lowest levels in 50 years. The economy is not broken. There is no recession in sight. The Fed is not expected to make a move this year. Markets rallied from mid week lows.
The continued expansion in the economy continues to make the drag on trade. The trade deficit in goods increased to $74 billion in August. The deficit will hit $1 trillion dollars this year despite the Trump tariff policy.
The White House now faces a full impeachment process. The President considers this to be a coup ...
"As I learn more and more each day, I am coming to the conclusion that what is taking place is not an impeachment, it is a COUP, intended to take away the Power of the People, their VOTE, their Freedoms, their Second Amendment, Religion, Military, Border Wall, and their God-given rights as a Citizen of The United States of America!"
Well at least he is learning on the job ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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