IMF spreads the gloom
THE International Monetary Fund new top economist, Gita Gopinath, is not happy about the state of the world.
A combination of the US-China trade dispute, Brexit unknowns and geopolitical tensions from Turkey to Iran and hong Kong has placed the world in a ‘precarious’ state.
The global economy is at its weakest in 2019 since the financial crisis and not forecast to do much better next year.
If there is optimism, it is that it could have been even worse. Were it not for the easing of interest rates and monetary policy by central banks, with the US Federal Reserve and the european Central Bank to the fore, the global growth forecast of 3pc for 2019 would be weaker by at least 0.3pc.
But before anyone panics, it must be said that some of the players recognise the tangle created. If US Treasury Secretary Steve Mnuchin is to be taken seriously, then a ‘fundamental agreement’ on future trade relations with China is in sight.
But it will have only a marginal impact on the 0.8pc in lost global production for 2019 and the 0.9pc for 2020.
Similar balm could be applied through a Brexit deal with the EU. Rather than risk being caught again in the crossfire, the Fund has built into its model a passive transition that leaves the UK with stuttering growth of 1.2pc this year and 1.4pc next, but avoiding recession. however, a No Deal would, in the IMF’s view, lead to a slump.
The UK’s uptick for next year is largely based around Chancellor Sajid Javid’s relatively generous spending review. But that hasn’t wound its way through the Commons yet. Tricky for a minority administration.
Much of Gopinath’s recipes for recovery are a form of self-help and one suspects she has Donald Trump partly in mind.
US- China, Iran and Turkey could be regarded as self-harming diplomacy. even fierce critics cannot blame Trump for meltdown in Argentina. Growth in world trade of only 1pc cannot be wholly blamed on the White house.
As the World economic Outlook report points out, manufacturing has been hollowed out partly as a result of a 3pc decline in car production in 2018. That largely explains why Germany is close to the bottom of the G7 growth league with growth of 0.5pc this year – only Italy is worse.
extinction Rebellion may want carbonemitting cars off the road. But its agenda means economic dislocation, fewer jobs and less prosperity.
The IMF thinks monetary policy may have run its course. That means countries with fiscal space – in Britain we have been calling it headroom – are encouraged to spend. Britain has limited space but Boris Johnson seems determined to end fixing the roof.
Germany, which has all the headroom in the world, remains trapped by its historical baggage. Never again the burden of postwar debts (bravely forgiven by the Allies) or the inflation madness of the 1930s.
But persuading it to behave like europe’s locomotive is like asking Donald Trump to stop his incendiary geopolitical tweeting.
Reverse gear
ONE favourite cry of the people who support Remain is that it will crush foreign direct investment (FDI) in the UK. The recent spate of private equity bids, including the offer for Sophos, points to something different.
But the really big change according to IMF analysis is Trump’s tax reforms. In 2018 FDI came to a near-standstill.
In the period 2011-17, US multinationals, including the tech giants, stored $300bn a year in the accounts of overseas offshoots, many of them in low-tax destinations. In 2018 they brought home $230bn, which is exactly what the White house wanted.
Quite a victory for the tweeter-in-chief.
Victory lap
THE latest quarterly results from the US banks demonstrate how big a winner Jamie Dimon’s JP Morgan has proved to be from the financial crisis.
Its absorption of the retail banking assets of Washington Mutual turned it from a New York bank into a national institution.
And its acquisition of Bear Stearns strengthened its Wall Street exposure.
Goldman in contrast remains heavily dependent on bids and deals and taking stakes in firms. The bank suffered a 26pc decline in third-quarter earnings.
Its effort to build retail operations from the ground up are a slow burner for Wall Street’s provider of the good and the great to enter public service.