Saturday 24 March 2018

Protectionist trade policy fears result in shaky outlook

Donald Trump’s election as US president was further evidence of a rise in nationalism, along with the UK’s Brexit vote
Donald Trump’s election as US president was further evidence of a rise in nationalism, along with the UK’s Brexit vote

Rahul Karunakar

The global economic outlook remains shaky, despite recent pockets of resilience, according to the overwhelming majority of economists polled by Reuters who said a rise in protectionist trade policies would hamper growth.

With elections due in a number of major euro zone countries, political change in the bloc was picked as a close second choice for potential disruptions to the global economic revival.

That uncertainty is heightened by the signs of a rise in nationalist sentiment worldwide, as exemplified by Britain’s surprise vote last year to leave the European Union and Donald Trump’s shock US election victory.

Three months ago, economists overwhelmingly cited a pickup in international trade as essential for improvement in the world economy. But an expected rise in protectionist policies has dented confidence in those prospects.

This trend is reflected in most other Reuters polls over the past month on major economies, stock prices, bond yields and foreign exchange rates.

“Clearly, the geopolitical, political and economic risks facing the world are many and multifarious, and it is no easy matter to isolate those that seem most apparent to us,” wrote Mike Carey, chief economist at CA-CIB in a note.

“While 2017 does not look as if it will be the ‘year of living dangerously’, 2018 could well be more fraught.”

Reuters polls of over 500 economists across Asia, Europe and the Americas reveal downgrades, or at best no change to growth forecasts compared with previous months, as well as a weaker inflation outlook across most countries.

While the latest poll gave only a 10pc probability of a global economic recession this year, the main difference this time is that the range of forecasts for global growth showed lower highs and lower lows.

Speculation that Donald Trump will enact bold stimulus and reflationary measures once in office has pushed up US 10-year Treasury yields by around 50 basis points since election day, lit a fire under the dollar and sent US stocks to record highs.

But concerns over his stand on trade are starting to undermine investor sentiment, with the yen – considered a safety bet in uncertain times – back to its highest levels in more than five weeks.

“Maybe a home-grown US wage acceleration is under way, with Trump’s policies acting as a conduit to bring it all about. It’s a nice thought, but we need more substance,” wrote Jan Lambregts, global head of financial markets research at Rabobank.

“Trump’s fiscal plans are as of yet unclear in size, focus and therefore impact. Markets are currently priced for perfection when it comes to Trump’s policies. That’s a lot to ask for.” (Reuters)

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