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If Australia joins the US in a new cold war against China it will “pay an unbearable price “

China’s Global Times says Australia’s economy “cannot withstand” a cold war with China

Its an opinion piece in the outspoken GT and comes in response to US Republican Senator Rick Scott urging Australia to join the US in a new “Cold War” against China.
Here is the link, there is plenty more of this sort of thing here:
  • Canberra should be mindful of avoiding inappropriate statements from its officials or politicians that may echo what Scott urged. 
  • Due to escalating tensions between the two countries on multiple fronts – such as the Hong Kong affair, a US-led inquiry into the origin of the coronavirus origins, and a travel and study warning – China-Australia relations have been rapidly sliding to near freezing point. 
  • A new Cold War may only further jeopardize the already fragile relations between the two sides.
I wouldn’t think this sort of sentiment is a positive for AUD, yeah? Here is the link to the GT article
China's Global Times says Australia's economy "cannot withstand" a cold war with China 

IMF’s Georgieva: Uncertain situation is the new normal

IMF chief, Kristalina Georgieva, speaks in Davos

Kristalina Georgieva
  • Uncertainty is the major downside risk for global economy
  • Wants to see governments stepping up action
  • The world is more shock-prone as it is interconnected currently
  • We are in a better place at the start of 2020 than in 2019
  • Sees signs of trade, industrial slowdown bottoming out
  • Consensus is that global rates will be low for longer
  • Fed, PBOC have policy space
  • Other countries need to look at fiscal tools more closely
Low growth, low rates. That is the new landscape that the world will have to deal with. And with central banks still injecting so much stimulus and being so cautious, we shouldn’t expect to see a crisis like the one in 2008-09 materialise.
However, any chance of major economies and the world returning back to what is perceived to be “normal” is probably not going to happen either.

IMF: Growth is worse but at least uncertainty is lower

IMF lowers 2019 global growth estimate for the sixth straight quarter

IMF lowers 2019 global growth estimate for the sixth straight quarter
2019 is over but the outlook for growth keeps getting worse. The IMF lowered its 2019 global growth forecast to 2.9% from 3.0% in October. It was the sixth consecutive cut to the 2019 outlook.
The 2021 forecast was also lowered to 3.4% from 3.6%.
On the upside, the IMF maintained its 2020 GDP forecast at 3.3% and said that economic uncertainty is diminished with risks “less skewed” toward negative outcomes, albeit still tilted to the downside.
The big loser in this round of forecasts was India with the 2020 forecast cut to 5.8% from 7.0% on declining credit growth.
Other highlights:
  • 2020 Eurozone GDP seen at 1.3% vs 1.4% in Oct due to manufacturing contraction in Germany
  • Boosts China 2020 GDP to 6.0% from 5.8% on trade deal
  • Cuts 2020 US GDP to 2.0% from 2.1%
  • UK forecast unchanged at 1.4%
For me, these forecasts don’t have much value on their own (as you can see from the frequent revisions) but they are a valuable way to visualize and interpret the evolving growth picture.

IMF trims 2020 global growth forecast to 3.3% from 3.4% previously in October

IMF attributes the slight downwards revision to a sharper-than-expected anticipated slowdown in India

  • Sees tentative signs that manufacturing and global trade are bottoming out
  • That is partially due to the US-China trade deal
  • Sees risks less tilted to the downside than in October
  • US-Iran tensions, social unrest and a flare-up in trade tensions are key concerns
  • 2021 global growth forecast seen at 3.4% (3.6% previously)
  • US 2020 growth forecast seen at 2.0% (2.1% previously)
  • China 2020 growth forecast seen at 6.0% (5.8% previously)
  • Euro area 2020 growth forecast seen at 1.3% (1.4% previously)
  • UK 2020 growth forecast seen at 1.4% (unchanged)
  • India 2020 growth forecast seen at 5.8% (7.0% previously)

(more…)

Pres. Trump has not yet decided to rollback tariffs with China

Says China would like to have them rollback

  • Has not yet decided on rollback of tariffs with China
  • Says he isn’t concerned about anything on impeachment
  • Says he won’t fully rollback China tariffs
  • Says he could sign it trade deal with Xi in Iowa
  • Says he plans to sign any China trade deal in the US
  • Says China wants make a deal
  • I am very happy with taking in billions of dollars from China in tariffs.
The comment that he won’t FULLY rollback China tariffs is open to interpretation.
  • Does it mean that he won’t initially fully rollback the tariffs?
  • Does it mean he will be reluctant to rollback all the tariffs over time?  The President does have a tendency to like to get back what was taken.  He also thinks the tariffs are paid by China directly.
  • Does it mean, there will be some rollback initially. Peter Navarro said earlier that the December 15 tariffs would be postponed on a Phase I  deal, but the existing tariffs would remain to encourage Phase II and Phase III talks to proceed

‘Phase 1’ of US-China deal was easy, now comes the hard part

 Even as the “phase one” trade deal between the U.S. and China averted an escalation of the trade war, the agreement is widely seen as a small-bore pact that focused on relatively easy issues, such as agricultural and currency.

The deal was a product of compromise by two countries eager for a respite amid growing concerns about economic slowdowns. The two nations must tackle structural issues, such as China’s government subsidies, in the next phase of talks, and a real end to the trade war that would eliminate punitive tariffs imposed on each other still remains elusive. 

U.S. President Donald Trump was exuberant in announcing the agreement that would ease the pain of the Midwestern farmers that make up the core of his support base.

“The deal I just made with China is, by far, the greatest and biggest ever made for our Great Patriot Farmers in the history of our Country,” Trump tweeted Saturday morning. “In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!” 

In contrast, the Chinese side remained subdued. Beijing issued a statement reporting progress in agriculture but did not mention an “agreement.” State television reported the deal, although it downplayed the story. Trump’s about-face in May last year after an agreement to avoid tariffs was not lost on top Chinese officials.  (more…)

IMF says monetary easing unlikely to make a lasting improvement in trade balance

Exchange rates can’t do it all

The IMF is out with a blog post about the effectiveness of using monetary policy to weaken a currency and boost exports.
“One should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance,” the authors write.
They estimate that a 10% decline in a country’s currency improves the trade balance by about 0.3% of GDP in the near-term, largely via a contraction in imports. Over three years the effect is larger and hits an average of 1.2% of GDP.
One thing they highlight is that much international trade is done in US dollars. This slows and limits the effects of weakening the currency.

IMF lowers global growth forecast to 3.2% from 3.3%

The latest forecasts from the IMF

The latest forecasts from the IMF
The previous round of forecasts were in April:
  • 2020 global growth to 3.5% from 3.6%
  • US to 2.6% vs 2.3% prior
  • 2020 US growth 1.9% vs 1.9% prior
  • Eurozone 1.3% vs 1.3% prior
  • 2020 Eurozone raised to 1.6%
  • China 6.2% vs 6.3% prior
  • 2020 China 6.0% vs 6.1% prior
  • Canada 1.5% vs 1.5% prior
  • Germany 0.7% vs 0.8% prior
  • 2020 Germany to 1.7% vs 1.4% prior
  • Italy +0.8% vs +0.1% prior
  • Advanced economies 1.7% vs 1.8% prior
  • Emerging markets 4.7% vs 4.4% prior
  • 2020 emerging markets 4.7% vs 5.0% prior
  • World trade volume lowered to 2.5% vs 3.4% prior
  • Full report
In April, the IMF lowered its forecasts. Since October, this is the fourth downgrade in global growth and the statement said downside risks have intensified going forward, noting trade.
“The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the report says.
They noted that fixed investment is particularly soft, even in places where growth has surprised to the upside. They note high inventories in the UK and US.