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Macroeconomic & Geopolitical

Headwinds in Global Growth Outlook, but a Smooth Landing Expected

22 November 2019 - 3 min read

Global growth outlooks are the weakest since the recession and the U.S.-China trade deal may be delayed through the new year. Meanwhile the FOMC is likely to remain on hold in December.

Overview

OECD Outlook: The OECD downgraded global growth to its weakest growth since the global financial crisis. The OECD forecasts global GDP growth of 2.9% in 2019 and remain around 3% in 2020 and 2021—a downgrade from the 3.5% projection last year. The OECD’s largest concerns for the outlook are structural changes such as climate change, digitalization, and trade and geopolitics moving away from the multilateral order of the 1990s—all of which have contributed to heightened uncertainty which is hindering investment. Separately, the report noted that due to structural changes in the Chinese economy, China’s traditional contributions to global growth will slow and change in nature. Simultaneously India will grow more rapidly, but its growth will not be enough to offset the waning support from China on global manufacturing.

FOMC Minutes: The minutes from the October FOMC meeting confirmed the Fed’s wait-and-see stance. Consistent with the press conference, and Powell’s subsequent speeches, the Fed will only change course if developments emerge that would require them to make a material reassessment to their outlook. More notably from the minutes, the FOMC members pointed out that policies such as QE would not be as effective as they were during the Great Recession since longer-term interest rates would likely start at a much lower rate. In a review of the repo market operations, the minutes noted the possibility of maintaining a role for repo operation in their framework longer-term in order to support control over the fed funds rate.  Separately, all participants agreed that negative interest rates are not currently an attractive monetary policy tool for the U.S.

Trade Deal Update: The U.S. and China continue to march on with trade talks as a congressional response to the Hong Kong unrest adds to the list of potential snags the trade deal may have. Despite this move, White House economic adviser Larry Kudlow said talks over the first phase of an agreement with China were coming down to the final stages, with the two sides in close contact. The near-deal that fell apart in May of this year is now being used as the benchmark to decide how much tariffs should be rolled back in the initial phase of the trade agreement. The Chinese have demanded that all tariffs imposed after May be removed immediately and then tariffs imposed before that be lifted gradually.

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