Beware of slower than expected global growth

WARNINGS on slower-than-forecast global growth should not fall on deaf ears but instead, should awaken even the most self-centred of leaders.

With a big challenge to try and prop up growth, nations should look beyond their own great agenda to see the greater struggles especially of emerging economies.

Leaders seeking re-election quite soon may be in a hurry to meet their earlier promises but they should view their measures, especially the more aggressive ones, against global implications.

Seeking quick fixes in their race for time, can only end up with messy outcomes which upset the overall growth cart.

The rapid decline in growth forecasts is a matter of concern, as was shown in recent, fierce market tumbles, which had also reacted to Fed chairman Jerome Powell’s earlier comments that rates were “a long way from neutral.”

Global growth, said the International Monetary Fund, may be slowing down more than forecast just a month ago, when it was downgraded to 3.7% from 3.9% in July.

The US and China have come to just a 90-day truce on further tariffs; in the coming months, it will be trust and sincerity that will pull the talks on “structural changes” through.

Both parties have to work very hard to avoid further conflict, and undo the damage inflicted through arrogance, impatience and retaliation.

One party cannot just blow up, reverse earlier decisions, retaliate or go into withdrawal at the slightest hurdle, and cause panic and worry overall.

The two parties cannot put everyone else on a roller coaster; in many cases, these are people’s ricebowls they are hurting within the larger agenda that they must manage.

Economic conditions next year will not be easy. Existing tariffs will still hurt, unless both parties agree to drop them.

It may be true that “billions of dollars are pouring in” from tariffs, but usually, consumers end up paying more.

Ahead of possible challenges to growth which is still seen to be solid, Powell has shifted to a more cautious tone on future rate hikes.

US pending home sales, which are signed contracts to buy existing homes, have dropped to a four-year low while new home sales fell to more than a 2½-year low in October.

US soybean farmers, finding it tough to pay their bills with patriotism, are increasingly under pressure as selling prices fall below their cost of production; soybean exports to China, their major market, have fallen 94% from a year ago.

Come February and March, soybean farmers have to pay off loans; if prices continue to be unprofitable, they may find it hard to obtain financing.

China may have agreed to buy a substantial amount of agricultural produce immediately, but the truce is only for 90 days.

China’s official manufacturing purchasing managers index for November fell to the brink of contraction, snapping a more than twoyear growth streak.

New export orders for China shrank for the sixth month; the gauge for construction and services expanded at a slower pace.

China needs to get the trade war out of its way, as it tackles its stagger- ing debts where in shadow banking alone, U$9 trillion in unregulated products, have come under scrutiny.

Peer-to-peer lending platforms that match small savers with small borrowers, are reportedly going for a major shakeout, having ballooned to US$176bil in outstanding loans.

Hopes for an emerging market (EM) rally are running high; many have shifted from overvalued developed markets into bashed down EMs.

As investors turn selective on EMs, the recent survey by Bloomberg indicated four of the top six economies on their scorecard are from Asia – Malaysia, China, the Philippines and Thailand.

Hopes for a rally need to be tempered with a measure of caution as uncertainty still abounds.

Powell’s apparent dovish shift is quite vague; rates remain at “just below the broad range of estimates of the level that would be neutral to the economy.”

Under this “broad range of estimates,” markets are guessing as to when exactly the Fed will pause its rate hikes.

China, which is important to EMs, may need more stimulus measures to keep its economy stable in the absence of a large fiscal push.

If the US economy slows down, or goes into a recession, prospects for export-driven EMs will be hit.

“(So far), it is a half-hearted rally born out of the usual hope that, at this point of the later (expansionary) cycle, the Fed will somehow stop its tightening of rates on time, to cease the grind towards a US recession (possibly sometime very late in 2019 or early 2020),’’ said Pong Teng Siew, head of research, Inter-Pacific Securities.