Aggravation of the situation: because of trade wars, the United States was on the verge of a recession - ForumDaily
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Aggravation of the situation: due to trade wars, the United States was on the verge of a recession

Economic growth in the USA, as leading forecasts assure, tends to 2% of GDP. And this is not least due to trade warsthat unleashed by President Donald Trump. Experts believe that there is almost no incentive for growth.

Фото: Depositphotos

Experts analyzed the economic forecasts for the third quarter of 2019 of the year in the global economy, the eurozone and the USA. Most leading indicators in all three zones indicate an aggravation of the situation.

In the third quarter of this year, the economic climate in the world, according to the IFO Institute, deteriorated sharply - to -10,1 compared to -2,4 in the second quarter of this year. Both the assessment of the current situation and expectations for the coming months have significantly decreased, experts say.

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A deterioration in the IFO may indicate a “transition from the growth phase of the global economy in the business cycle to recession."

Фото: Depositphotos

The decline in the global manufacturing sector has been going on for the third month in a row. The global PMI index, which characterizes the global market situation in industry, has been below the neutral level of 50 points since May and fell to 49,3 points in July - the lowest since October 2012.

The decline in industrial activity was observed in countries such as China, Japan, Germany, South Korea, Taiwan, France, the UK, Italy and Brazil.

If the global economy is slowing, then the eurozone can not be an exception. Moreover, growth problems have already arisen in the strongest EU economy - the German one, which makes up about 20% of the total GDP of the EU countries. The business climate in Germany in August fell to the level of November 2012, follows from an expert report.

The situation is worse in the US than in the EU

In the US, forecast indicators have gone even lower than in the EU, and indicate a slowdown in growth. This can be judged, for example, by the OECD composite leading index. In June, it fell to 98,8, the lowest level since January 2010. Since November last year, the index has been below the level of 100 points, which indicates a slowdown in economic growth below the long-term potential level.

Photo: Facebook / WhiteHouse

Another indicator - ISM-PMI of the American Institute of Supply Managers (The Institute for Supply Management) - in July sank to the value of 51,2%, and in August - to 49,1. The index reached its lowest level since September 2016.

However, despite the deterioration, he still has a chance to stay on the whole for the year above the “threshold” value in 50 points, which separates growth from decline.

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According to analysts at the Institute of Procurement Managers, the index, although it indicates a slowdown in the US economy, is consistent with an increase in GDP of 2,5% year on year.

But if the decline continues at such a pace as it is now, then the growth of the US economy by the end of the year may drop to 2%, experts conclude.

At the heart of the slowdown is the intensification of the conflict between the United States and China. It is the trade war unleashed by President Donald Trump that has the most detrimental effect on the global economy, analysts conclude.

Some of them are wrong

It is not surprising that Trump, who is well aware of the state of the economy, is now trying to use all the levers to stimulate damped growth. The rate is placed on the artificial weakening of the dollar against major currencies. The Federal Reserve is still resisting (the Fed). But Trump is inspired by the actions of the European Central Bank and intends to “suppress” the Fed.

That's what Trump wrote in one of his posts, having managed in one paragraph to concentrate two key tenets of his economic policy.

“The euro is falling against the dollar,“ like crazy, ”which gives them (the European Union) a big advantage in export and production, and the Fed does NOTHING! Our dollar is now the strongest in history. Sounds good, doesn't it? With the exception of those (manufacturers) whose products are intended for sale outside the United States, ”said Trump.

At the same time, he refuses to recognize the negative impact of tariff restrictions, which he himself imposes against other countries, primarily China. U.S. President calls competitors dishonest players.

“We have no problem with duties, we have a problem with the Fed. They are stupid! ”Concludes Trump.

This week, we recall, the next batch of new US tariffs on imports from China came into force, the rest is expected in December. What will be the consequences for American business is not yet known. But about 150 trading companies sent a letter to the US President asking them to make a deferment.

Trump, in turn, called them weaklings, impeding economic growth.

Meanwhile, the new tariffs will affect the interests of several sectors of the economy at once: retail goods, food and agribusiness, industrial technologies and telecom, as well as clothes and shoes.

This means that a trade war will now hit the pockets of the American consumer. Almost 90% of clothing and textiles in the USA are from China. If they are subject to increased duties at the border, then they will rise in price on the shelves.

Trump began the trade war with the introduction of increased tariffs on Chinese imports in the amount of $ 250 billion to force Beijing to respect intellectual property rights. China did not recognize this and imposed $ 110 billion import duties on American goods as a response. The conflict dragged on and moved into a geopolitical plane.

Crisis or not crisis?

Talk about the threat of a recession in the United States is somewhat premature, argues Ivan Kapustyansky, a leading analyst at Forex Optimum.

“Most likely we should talk about stagnation and slipping. If we focus on the service PMI, then in June-July the indicators were at a good level of 52,2-53 units and only in August fell to 50,9, and in general, US GDP, according to the second quarter, still grew by 2% per year: mainly , of course, precisely thanks to the services sector, which in itself accounts for more than 75% of the entire US economy, ”the expert cites figures.

The topic of a possible American (Chinese or global) decline in production has so far been mainly used as the most obvious pretext for lowering Fed rates. The main and hidden goal of this financial “special operation” is the cardinal “shrinkage” of interest that the US is forced to pay on its debts, Kapustyansky draws attention.

The history of trade wars has already affected interest on debt obligations: from 3% per annum they fell to 1,5%, and Fed rates falling by the end of the year will lower the “premium” for bondholders even lower.

Kapustyansky believes that the US Federal Reserve “not on business” too raised the key rate in 2018 four times. Now it needs to be returned to the level in 1-1,25% in order to “restart” and extend the long growth cycle, which is now exhausting.

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