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Macroeconomic & Geopolitical

The Good (Consumer), The Bad (Global Outlook) & The Ugly (Trade)

18 October 2019 - 4 min read

The IMF downgrades its global growth outlook, the Fed’s Beige Book notes household spending remains positive and a Brexit deal is on the table.

Overview

Global Outlook Weakens: The International Monetary Fund downgraded its outlook for the global economy to its weakest pace since 2008. The IMF cut its global growth forecast for 2019 by .2 percentage points from its July forecast, to 3%. The IMF expects a rebound for the global economy in 2020, forecasting 3.4% growth. The IMF forecasts the U.S. will grow at a rate of 2.4%—down from 2.9% in 2018—and slow further to 2.1% in 2020.The IMF expects China’s growth to slide to 6.1% in 2019 and 5.8% in 2020—the slowest rate since 1990. The fund noted that rising trade barriers and increasing geopolitical tensions are weighing on growth, estimating that the U.S.-China trade tensions will lower the level of global GDP by .8% by 2020. They also noted that country-specific factors in many emerging market economies, as well as low productivity growth and an aging population in advanced economies, are also weighing on global growth.

Fed Beige Book: The report noted slight to modest economic expansion, as business activity varied across the country. Household spending remained positive, with growth in non-auto retail sales, light vehicle sales, and tourism and travel-related spending. Employment rose slightly despite worker shortages. Employers are turning to non-wage approaches to attract and retain workers as the labor market tightens. Both manufacturers and retailers cited increases in input costs. The report noted that retailers were relatively more successful passing on the rising prices to consumers. Manufacturing activity took a step back amid slowing global growth and rising trade tensions. Businesses have a positive economic outlook, though many lowered their outlooks for growth in the coming 6–12 months.

Brexit Deal on the Table is Half Baked: Talks of a Brexit deal are starting to ease nerves, though a no-deal exit is not off the table. Prime Minister Boris Johnson and EU Commission President Jean-Claude Juncker announced an agreement on a revised Brexit deal. However, the deal still needs to pass parliament. With the deadline in two weeks, the U.K. is seeking an extension, but the EU does not appear willing to oblige. While the announcement of a deal eased global concerns, many aspects are still up in the air as the world continues to keep a keen eye on the progress of the proposed deal.

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