Central banks must act quickly on inflation, warns BIS

ZURICH, Switzerland - Central banks must not let inflation become entrenched, with the threat of stagflation looming over the global economy, the Bank for International Settlements warned Sunday in its annual economic report.

BIS, considered the central bank of central banks, said institutions will have to move swiftly to ensure a return to low and stable inflation, while limiting the impact on growth.

"The key for central banks is to act quickly and decisively before inflation becomes entrenched," said BIS general manager Agustin Carstens.

"If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs."

BIS's flagship report said that in restoring low, stable inflation, central banks should seek to minimize the hit to economic activity, in turn safeguarding financial stability.

BIS said engineering a so-called soft landing had historically been difficult, and the starting conditions now were making the task all the more challenging.

"It would be more desirable if we could have a soft landing because that would mean that the tightening of monetary policy could be more subdued," Carstens told a press conference.

"But even if this is not the case, definitely the priority should be to combat inflation," to prevent the world economy from slumping. 

STAGFLATION DANGERS

After the shock of the Covid-19 pandemic, central banks initially saw the return of inflation as temporary as the economy picked up again.

But the rise in prices has sharply accelerated since Russia's invasion of Ukraine in February.

BIS said the global economy risked entering a new era of high inflation.

The dangers of stagflation -- stagnant growth coupled with rising prices -- loom large, as a combination of lingering disruptions from the pandemic, the war in Ukraine, soaring commodity prices and financial vulnerabilities cloud the outlook, it added.

Policymakers must press ahead with reforms to support long-term growth and lay the groundwork for more normal fiscal and monetary policy settings, BIS said.

While the European Central Bank plans to raise interest rates in July and then again September, the US Federal Reserve on Wednesday carried out its largest rate hike since 1994.

The Fed announced a 0.75-percentage-point rise and said it is prepared to do so again next month in an all-out battle to drive down surging inflation.

1970s COMPARISON

Established in Basel in 1930, the BIS is owned by 62 central banks, representing countries that account for about 95 percent of global gross domestic product (GDP).

In its annual report, the BIS looked at the stagflation of the 1970s, when the oil shocks of 1973 and 1979 caused inflation to jump.

In 1973, oil prices had more than doubled in the space of a month. Oil occupied a much more central place in the economy, it said.

Moreover, inflation was already rising before the oil shock, while the global economy is now emerging from a long phase of low inflation.

But the BIS also highlighted other points of vulnerability, including the current high level of private and public debt.

And with Russia's war in Ukraine, inflation this time is not only based around oil, but also other sources of energy, agricultural raw materials, fertilizers and metals.

The most pressing challenge for central banks is therefore to bring inflation down to low levels, according to the BIS.

High inflation situations tend to be self-reinforcing, warned the BIS, especially when wages spiral into an attempt to offset rising prices.

Agence France-Presse

IMF upgrades global growth outlook again as some COVID clouds begin to clear

The International Monetary Fund raised its outlook for global economic growth again on Tuesday, forecasting worldwide output would rise 6 percent this year, a rate unseen since the 1970s, thanks largely to the unprecedented policy responses to the COVID-19 pandemic.

That upgrade, from 5.5 percent less than three months ago, largely reflects a rapidly brightening outlook for the US economy, which the IMF now sees growing by 6.4 percent in 2021, the fastest since the early 1980s. That's up 1.3 percentage points from the IMF's 5.1 percent projection in late January and nearly double the rate it estimated in October.

The IMF forecast, if realized, would mark the fastest pace of global growth since 1976 but also comes off the steepest annual downturn of the post-war era last year as the pandemic brought commerce around the world to a near stand-still at times. The fund said the world economy contracted 3.3 percent in 2020, a modest upgrade from an estimated contraction of 3.5 percent in its January update.

The latest World Economic Outlook - released at the start of the IMF's and World Bank's spring meetings - reflects a dramatic divergence between the outlook for the United States and much of the rest of the world courtesy of another $1.9 trillion in pandemic relief spending recently enacted in Washington.

The outlooks for other advanced economy heavyweights, such as Germany, France and Japan, hardly improved at all since January. Nonetheless, with the heft of the US outlook improvement as the main driver, the IMF marked up its advanced economy growth estimate to 5.1 percent from 4.3 percent.

Forecasts for emerging market economies, while somewhat improved, took a back seat to their developed peers. The fund's outlook for EM economies rose by just 0.4 percentage point - half of the advanced economy mark-up - to 6.7 percent from the view in January.

"(M)ultispeed recoveries are under way in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic policy support, and structural factors such as reliance on tourism," the IMF said in its report summary.

The United States economy this year will join China in regaining a level of gross domestic product that exceeds where it stood before the pandemic struck just over a year ago, the IMF said. China recaptured all of its lost growth by the end of 2020.

The IMF emphasized the high degree of uncertainty surrounding the outlook, and that improvements could easily be tripped up by any of several factors, with success against the pandemic topping the list.

"Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines can lead to a sharp downgrade," it said.

Another big risk centers around the persistence of accommodative policies, from the United States in particular. Long-term interest rates around the world have risen sharply since January, as market participants revise their expectations for how soon the US Federal Reserve begins to normalize its policy stance. 

(Reporting By Dan Burns; Editing by Andrea Ricci)

Agence France-Presse

For the world economy, a grim slog tempered by new hopes

Nearly a year into a pandemic that has ravaged the global economy like no time since the Great Depression, the only clear pathway toward improved fortunes is containing the virus itself.

With the United States suffering its most rampant transmission yet and with major nations in Europe again under lockdown, prospects remain grim for a meaningful worldwide recovery before the middle of next year and far longer in some economies. Substantial job growth could take longer still.

A significant hope has emerged this month in the form of three vaccine candidates, easing fears that humanity could be subject to years of intermittent, wealth-destroying lockdowns. But significant hurdles remain before vaccines restore any semblance of normalcy. More tests must be conducted and vast supplies manufactured. The world must navigate the complexities of distributing a lifesaving medicine amid a surge of nationalism.

The very concept of normalcy now seems open to question. Even after the coronavirus is tamed into something familiar and manageable like the flu, will people habituated to keeping their distance from others return to restaurants, shopping malls and entertainment venues in the same numbers? With videoconferencing established as a replacement for business travel, will companies shell out as much as before to put them on airplanes and in hotels?

Calculating the prospects for a vigorous economic recovery entails wrestling with questions of human nature. The Depression imprinted a generation with a tendency toward thriftiness and an aversion to risk. If frugality endures this time, that would have profound and enduring economic consequences; consumer spending typically makes up two-thirds of economic activity in countries like the United States and Britain.

“If you’re a business, you might be a bit more wary about taking on staff again,” said Ben May, a global economist at Oxford Economics in London. “You might make do with overtime for a while. Households might behave more cautiously. If that’s the case, you run the risk of economic scarring further down the line.”

Long-term damage on top of the recent economic devastation would add to the inequality that has been a central feature of recent decades, as people with greater education, advanced skills and access to stock and real estate markets harvested the winnings of expansion, while others struggled.

The pandemic has made the world more so. It has concentrated its lethal force on blue-collar workers, for whom human interaction is a necessity, striking people who labor in warehouses, slaughterhouses and front-line medical facilities. Professionals able to work from home have maintained their safety along with their incomes.

The industries that face the greatest challenges in recovering — airlines, hotels, restaurants and retail — are major employers of lower-skilled workers and especially women.

At a time when companies are under pressure to make their workforces more diverse, the likelihood that many people will continue working from home threatens to impede entry and promotion for women and minorities. Breaking into established ranks and altering culture is not a process best conducted over Zoom.

That could limit economic dynamism. “Growing inequality is terrible for economies because consumption is reduced,” said Ian Goldin, a professor of globalization and development at Oxford University and author of “Terra Incognita: 100 Maps to Survive the Next 100 Years.” “A smaller share of your economy is able to buy your goods and services.”

What has been challenged most directly is the popular notion that the world economy could simply endure a deep freeze to contain the pandemic and then revive, almost as if nothing had happened. The idea was that public largesse could support workers and keep businesses alive during the short, sharp downturn required to choke off the virus, before commercial life recovered.

This sort of thinking was the basis for forecasts of a so-called V-shaped recovery: The astonishing collapse of major economies in the first half of the year was supposed to be followed by an equally astonishing revival.

But the global economy does not come with an on-off switch. After marked improvement in the late summer, the surge of virus cases has destroyed the hopeful scenario. The strains of the catastrophe — from failed businesses and elevated joblessness to disrupted education — appear likely to endure, potentially for years.

When the novel coronavirus first captured attention in China early this year, it prompted grave worries about a global shock. China was the world’s second-largest economy and a voracious purchaser of goods and services, from raw materials like soybeans and iron ore to the latest gadgets from Apple. Its factories produced electronics and apparel, chemicals and construction supplies, auto parts and appliances. Disruption in China was certain to ripple outward.

The threat intensified as the virus spread to Europe, shutting down commercial life in Italy’s industrial heartland and then spreading to factories across the continent. As the pandemic assailed Europe and then North and South America, governments ordered businesses closed to halt the virus. The economic unraveling proved more intense than the global financial crisis of a dozen years earlier.

World leaders drew on the playbook from that episode, unleashing trillions of dollars of credit via central banks and direct government spending. European nations effectively nationalized payrolls to prevent layoffs. The United States delivered expanded unemployment benefits. All of this eased fears of a cascading run of bankruptcies and a potential financial crisis.

After initially covering up the epidemic, China mobilized aggressively to contain it. Its factories roared back to life, and its 1.4 billion people resumed spending, making China a rare engine of growth in the world economy.

In Europe, the apparent containment of the virus in the summer months along with the lifting of government restrictions prompted people to emerge from their bunkers, taking holidays, going out to eat and generating optimism for a recovery.

Between July and September, most major economies expanded dramatically. The United States grew more than 7% compared with the previous quarter and Germany by more than 8%. The United Kingdom expanded by nearly 16% and France by a whopping 18%. Such performances were embraced by some as proof that economies would snap back as soon as the virus was gone.

Conditions appeared ripe for robust spending. Unlike in the aftermath of the global financial crisis, when households were contending with crippling debts — especially in the United States — many households in large economies are this time flush with cash, given the enforced savings regimen of the lockdowns.

“You have a lot of pent-up money,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo, Norway. “This is definitely a scenario for a rebound.”

Yet the exuberance of the summer also appears to have rendered the populace vulnerable. The French thronged cafes, and Britons returned to the pubs. Americans disdained masks as a supposed affront to civil liberties. The virus commenced spreading, triggering a new round of lockdowns that have destroyed hopes of recovery this year.

Most economists assume that Europe will register a contraction over the last quarter of the year. Britain’s economy is expected to shrink by more than 11% this year, according to Oxford Economics, and will struggle to mount a full recovery before 2022. Among the worst-performing major economies is India; its economy contracted 7.5% in the three months that ended in September compared with a year earlier, government figures showed Friday.

The world economy will contract by 4.4% this year, the International Monetary Fund forecast in its most recent assessment. World trade is on track to fall by as much as 9% this year, according to an assessment from the United Nations Conference on Trade and Development.

Next year, the world economy is expected to grow by 5.2%, according to the IMF, but that would still leave it only 0.6% larger than in 2019. Joblessness would remain elevated. Poor countries would continue to suffer a drop in earnings sent home by migrant workers. Malnutrition would climb.

In the United States, the defeat of President Donald Trump by Joe Biden has yielded optimism that a sustained and serious attack on the pandemic will now be waged. But the prospect that the incoming administration will be constrained by Republican control of the Senate — pending a pair of runoff elections in Georgia — reduces the likelihood that the government will agree on a robust package of spending measures to stimulate the economy.

Questions about next year center on how soon vaccines reach the bloodstream of the masses. The three candidates so far, from Pfizer, Moderna and AstraZeneca, have produced a credible vision of an end to the agony. But the economic pain has become so intense that its effects may linger.

The infusions of relief from central banks have propped up solid and flimsy companies alike. Many of the weak will eventually succumb, especially as aid is withdrawn, costing jobs. The pandemic has accelerated a pushback against globalization that may inspire multinational companies to make more goods in their home markets while cutting costs through automation — limiting job and wage growth.

Poor and developing countries went into the pandemic facing alarming levels of debt. Promised aid from international institutions like the IMF and the World Bank have proved disappointing. Private creditors have withheld debt relief.

Some argue that the pandemic should be the impetus for new economic models that create jobs through a transition to green energy while spreading the gains more equitably.

“What I’m allergic to at the moment is the notion of going back, bouncing back,” Goldin said. “It’s business as usual that got us to where we are.”

-The New York Times-

World facing bankruptcy time bomb: study

PARIS - Governments around the world are scrambling to save companies battered by coronavirus lockdowns but the world is nevertheless facing a massive surge in bankruptcies by a third, a study conducted by a trade insurance firm said Monday.

"COVID-19 is creating an insolvency time bomb," said the report by Euler Hermes, predicting a 35-percent cumulative jump in the number of companies that go bust between 2019 and 2021.

The firm, which provides insurance for trade deals, said this would be a record for its global insolvency index -- and that about half of the countries worldwide would be setting new highs since the 2009 financial crisis.

The biggest increase among the world's economic powerhouses will be in the United States, with a 57 percent jump in insolvencies in 2021 compared to 2019, before the coronavirus struck.

Bankruptcies are expected to soar by 45 percent in Brazil, 43 percent in Britain, and 41 percent in Spain.

China is forecast to see a 20 percent surge in bankruptcies.

In the United States, "the rapid spread of the virus is amplifying the trough in activity and generating a liquidity crisis for a larger set of companies", said the report.

"We do not expect the U-shaped recovery in the US to be sufficient to offset all the legacies of the crisis on financial metrics, nor to prevent the rise in insolvencies from continuing into 2021," it added.

The insolvencies are disruptive as other firms are left unpaid or forced to scramble to find new, often more expensive suppliers.

"The larger the company filing for bankruptcy, the higher the risk of a domino effect," said the report.

Euler Hermes also warned of two scenarios in which bankruptcies could jump even higher.

A premature withdrawal of supportive economic and policy measures could push the rise in insolvencies to 40-45 percent.

"And if the global economic recovery takes longer than expected, the surge" in insolvencies could rise to as high as 85 to 95 percent, it added.

Agence France-Presse

ADB warns global cost of virus could top $4 trillion

MANILA - The coronavirus pandemic could cost the global economy $4.1 trillion as it ravages United States, Europe and other major economies, the Asian Development Bank warned on Friday

The estimated impact is equivalent to nearly 5 percent of worldwide output based on a range of scenarios, but the lender said losses from "the worst pandemic in a century" could be higher. 

"The estimated impact could be an underestimate, as additional channels such as...possible social and financial crises, and long-term effects on health care and education are excluded from the analysis," the ADB said.

The Manila-based bank said a shorter containment period could pare the losses to $2 trillion.

The crisis has sent equity markets spinning as traders fret over the long-term impact on the world economy, though governments and central banks have stepped in to ease the pain, pledging more than $5 trillion in stimulus and easing monetary policy.

Officially reported COVID-19 cases worldwide topped the 1 million mark on Thursday, with tens of thousands dead, while there are warnings the numbers will continue to balloon as the disease rapidly spreads. 

With billions of people in lockdown and economies at a standstill, the ADB said Asia is forecast to grow 2.2 percent this year, its slowest pace since a 1.7 percent expansion during the Asian financial crisis in 1998. 

"No one can say how widely the COVID-19 pandemic may spread, and containment may take longer than currently projected," ADB chief economist Yasuyuki Sawada said. 

"The possibility of severe financial turmoil and financial crises cannot be discounted," he added. 

The forecasts assume the coronavirus outbreak will be contained this year and a return to normality in 2021. 

However, there is still the potential for additional outbreaks and the severity of the pandemic remains uncertain. 

"Outcomes can be worse than forecast and growth may not recover as quickly," the bank said. 

Growth in China, the region's largest economy, could slow to 2.3 percent this year from 6.1 percent in 2019, before bouncing back in 2021. 

"The outbreak became a demand shock as people stayed home. It became a supply shock as companies suffered shortages of labor...and of materials as supply chains faltered," ADB said.

Close to 5 percent, or $628 billion, of China's GDP could be lost. 

Agence France-Presse

Coronavirus pandemic battering global economy: surveys

PARIS/WASHINGTON -- Business activity collapsed from Australia, Japan and Western Europe to the United States at a record pace in March as measures to contain the coronavirus pandemic hammer the world economy, cementing economists' views of a deep global recession.

The highly contagious coronavirus, which causes a respiratory illness called COVID-19, has caused entire regions to be placed on lockdown and in some places soldiers are patrolling the streets to keep consumers and workers indoors, halting services and production and breaking supply chains.

"The global health crisis is rapidly morphing into a global recession, as there is a clear tension between preventing infections and ruining the economy," said Edoardo Campanella, an economist at UniCredit Bank in Milan. "However, a wise policy coordination between health and fiscal authorities should allow a V-shaped recovery once containment measures are relaxed."

Data firm IHS Markit said on Tuesday its flash US Composite Output Index, which tracks the manufacturing and services sectors, dropped to a reading of 40.5 this month. That was an all-time low and followed a reading of 49.6 in February.

Last month's decline in the index, which is seen as a good measure of economic health, was the largest in the series' history. A reading below 50 indicates contraction in business activity. The survey underscored the rapidly deteriorating economy, highlighted last week by a government report showing the biggest rise since 2012 in the number of Americans filing claims for unemployment benefits during the week ended March 14.

Economists are predicting claims will accelerate to a record 1.5 million or more when data for last week is published on Thursday.

The message was equally grim from the 19 countries that use the euro. IHS Markit's flash composite PMI for the euro zone plummeted to a record low of 31.4 in March.

That was by far the biggest one-month fall since the survey began in mid-1998 and below all forecasts in a Reuters poll which gave a median prediction of 38.8.

In France, services activity fell to a record low and manufacturing saw its steepest drop since the global financial crisis more than a decade ago.

A PMI for the services sector in Germany, Europe's largest economy, showed a record contraction in activity, while sister surveys showed Britain's economy shrinking at a record pace.

IHS Markit said the March figures suggested the euro zone economy was shrinking at a quarterly rate of around 2 percent, and the escalation of measures to contain the virus could steepen the downturn.

With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot. But some analysts say infinite monetary policy easing may not be enough and fiscal steps are crucial.

There was some optimism on that front, with senior Democrats and Republicans saying on Tuesday they were close to reaching a deal on a $2 trillion stimulus package to aid the US economy.

Hopes for a large fiscal stimulus sparked a sharp rebound in global stock markets, with the Dow Jones raking up its biggest one-day percentage gain since 1933.

EXTRAORDINARY MEASURES

After an initial outbreak in China brought the world's second-largest economy to a virtual halt last month, an ever-growing number of countries and territories have reported a spike in infections and deaths, leading to "social distancing" policies aimed at containing the spread of COVID-19.

Goldman Sachs is predicting that the global economy will shrink 1 percent this year, with gross domestic product in China estimated to contract at a 42 percent annualized rate in the first quarter and GDP in the United States dropping at a record 24 percent rate in the April-June period.

"The coronacrisis has pushed the world economy into a deep recession," said Goldman Sachs chief economist Jan Hatzius. "The response to that crisis represents a physical constraint on economic activity that is unprecedented in postwar history."

The bleak US economic picture ahead of the November presidential election has prompted President Donald Trump to push for businesses to reopen by Easter. Given rising infections and death toll, health experts, economists and politicians have cautioned against such a move, which they say could backfire, with Americans remaining fearful of going out.

Trump and Vice President Mike Pence held a conference call with major Wall Street investors on Tuesday.

"Sending the public back to work at this time would be premature," said Joe Brusuelas, chief economist at RSM in New York. "The US is better off taking a one-time hit to economic growth, as efforts to terminate the virus continue, rather than run the risk of multiple economic shutdowns."

Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of dollar funding threatening to cripple firms from airlines to retailers.

PMI surveys from Japan showed the services sector shrinking at its fastest pace on record this month and factory activity contracting at its quickest in a decade.

This was consistent with a 4 percent contraction in 2020, Capital Economics senior economist Marcel Theliant said. The postponement of the Tokyo Olympics is expected to deal a heavy blow to the world's third-largest economy.

The US Federal Reserve on Monday promised bottomless dollar funding and an array of programs to help keep companies afloat. For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and "soon" will roll out a program to get credit to small and medium-sized businesses. It will also expand its asset purchases by "as much as needed."

The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, US Treasury debt and foreign dollar funding markets functional.

G7 finance ministers and central bank governors on Tuesday pledged to expand fiscal and monetary actions for as long as necessary to restore growth and confidence.

With the International Monetary Fund predicting a global recession, the world's 20 largest economies agreed on Monday to develop an "action plan," but without specifics.

source: news.abs-cbn.com

G-20 to focus on impact of coronavirus on global economy

TOKYO - Finance chiefs from the Group of 20 major economies will focus on the impact of the spread of a new coronavirus on the world economy when they meet later this month in Saudi Arabia, G-20 sources said Tuesday.

In a meeting slated for Feb. 22-23 in Riyadh, the G-20 finance ministers and central bank governors are expected to discuss measures to mitigate risks from the deadly pneumonia-causing virus -- which originated in the central China city of Wuhan -- to the global economy and financial system, the sources said.

It will be the first G-20 gathering since the outbreak of the virus, which has killed more than 1,000 people and infected some 42,000 others in China, more than in the 2002-2003 SARS coronavirus pandemic.

The virus has spread to other parts of the world such as Japan, the United States and Europe, prompting falls in some stock and oil prices and sparking concerns about consumer sentiment and disruptions to supply chains.

The Federal Reserve said in a report released Friday that "possible spillovers" from the virus have posed "a new risk" to the US economic outlook.

source: news.abs-cbn.com

Chinese markets plunge as rising virus death toll fuels fears for global growth

BEIJING -- The death toll from a coronavirus epidemic in China rose to 361 and Chinese stock and commodity markets fell heavily on Monday as investors retreated into safe-haven assets in the first trading session after an extended Lunar New Year break.

Chinese stock and commodity markets plunged at the open in their first session since Jan. 23, when the outbreak of the newly identified virus had claimed only 17 lives in Wuhan city in Hubei province.

Since then the flu-like virus has spread to more than two dozen other countries and regions, with the first death outside of China reported on Sunday, that of a 44-year-old Chinese man who died in the Philippines after travelling from Wuhan.

The total number of deaths in China rose to 361 as of Sunday, up 57 from the previous day, the National Health Commission said. The number of new confirmed infections in China rose by 2,829, bringing the total to 17,205.

The Shanghai Composite index shed 8 percent to hit one-year low on Monday, wiping almost $370 billion off the market value, according to Reuters calculations.

The yuan began trade onshore at its weakest level this year . Iron, oil and copper traded in Shanghai all dropped by their daily limits, catching up with global price falls as the spread of the virus has weighed on the world's growth outlook.

Investors were bracing for volatility when onshore trade in Chinese stocks, bonds, yuan and commodities resumed, following a steep global selldown on fears about the impact of the virus on the world's second-biggest economy.

Looking to head off a panic, China's central bank said it would inject 1.2 trillion yuan ($173.8 billion) of liquidity into the markets via reverse repo operations on Monday.

Beijing also said it would help firms that produce vital goods resume work as soon as possible, state broadcaster CCTV reported.

But while stock markets reopened, most provinces have extended the Lunar New Year holiday to try and contain the virus, with workers in Hubei not scheduled to return to work until after Feb. 13.

Cities like Wuhan remain in virtual lockdown with travel severely restricted, and China is facing mounting international isolation as well due to restrictions on flights to and from the country.

At least another 171 cases have been reported in more than two dozen other countries and regions, including the United States, Japan, Thailand, Hong Kong and Britain.

The World Health Organization has declared the outbreak a public health emergency of international concern, but said global trade and travel restrictions are not needed.

More than 250 people from 30 countries arrived in France on Sunday after being flown out of Wuhan, the center of the outbreak, in the latest evacuation of foreign nationals from the locked-down city.

Australia evacuated 243 people, many children, from Wuhan on Monday and will quarantine them on a remote island in the Indian Ocean off its northwest coast.

Australia on Saturday followed the United States in barring entry to all foreign nationals travelling from mainland China.

The Group of Seven leading industrialized democracies are trying to find a common approach for dealing with the fast-spreading new coronavirus, German Health Minister Jens Spahn said on Sunday.

The virus is thought to have emerged late last year in a Wuhan market illegally trading wildlife. It can cause pneumonia and spreads between people in droplets from coughs and sneezes.

It has created alarm because it is spreading quickly and there are still important unknowns surrounding it, such as its death rate and whether it is able to spread before any symptoms show.

The number of deaths in China from the new virus has now passed the total Chinese toll from the 2002-03 outbreak of Severe Acute Respiratory Syndrome (SARS), another coronavirus which emerged from China and killed almost 800 people around the world.

Even so, Chinese data on the numbers of infections and deaths suggests the new coronavirus is less deadly than the SARS outbreak, although such numbers can evolve rapidly.

source: news.abs-cbn.com

Climate crisis to reshape finance: BlackRock CEO

Laurence D. Fink, the founder and chief executive of BlackRock, announced Tuesday that his firm would make investment decisions with environmental sustainability as a core goal.

BlackRock is the world’s largest asset manager with nearly $7 trillion in investments, and this move will fundamentally shift its investing policy — and could reshape how corporate America does business and put pressure on other large money managers to follow suit.

Fink’s annual letter to the chief executives of the world’s largest companies is closely watched, and in the 2020 edition he said BlackRock would begin to exit certain investments that “present a high sustainability-related risk,” such as those in coal producers. His intent is to encourage every company, not just energy firms, to rethink their carbon footprints.

“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” Fink wrote in the letter, which was obtained by The New York Times. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

The firm, he wrote, would also introduce new funds that shun fossil fuel-oriented stocks, move more aggressively to vote against management teams that are not making progress on sustainability, and press companies to disclose plans “for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized.”

Fink has not always been the first to address social issues, but his annual letter — such as his dictum 2 years ago that companies needed to have a purpose beyond profits — has the influence to change the conversations inside boardrooms around the globe.

And now Fink is sounding an alarm on a crisis that he believes is the most profound in his 40 years in finance. “Even if only a fraction of the science is right today, this is a much more structural, long-term crisis,” he wrote.

A longtime Democrat, Fink insisted in an interview that the decision was strictly business. “We are fiduciaries,” he said. “Politics isn’t part of this.”

BlackRock itself has come under criticism from both industry and environmental groups for being behind on pushing these issues. Just last month, a British hedge fund manager, Christopher Hohn, said that it was “appalling” of BlackRock not to require companies to disclose their sustainability efforts, and that the firm’s previous efforts had been “full of greenwash.”

Climate activists staged several protests outside BlackRock’s offices last year, and Fink himself has received letters from members of Congress urging more action on climate-related investing. According to Ceres and FundVotes, a unit of Morningstar, BlackRock had among the worst voting records on climate issues.

In recent years, many companies and investors have committed to focusing on the environmental impact of business, but none of the largest investors in the country have been willing to make it a central component of their investment strategy.

In that context, Fink’s move is a watershed — one that could spur a national conversation among financiers and policymakers. However, it’s also possible that some of the most ardent climate activists will see it as falling short.

Even so, the new approach may put pressure on the other large money managers and financial firms in the United States — Vanguard, T. Rowe Price and JPMorgan Chase, among them — to articulate more ambitious strategies around sustainability.

When 631 investors from around the world, representing some $37 trillion in assets, signed a letter last month calling on governments to step up their efforts against climate change, the biggest US firms were conspicuously absent.

BlackRock’s decision may give CEOs license to change their own companies’ strategy and focus more on sustainability, even if doing so cuts into short-term profits. Such a shift could also provide cover for banks and other financial institutions that finance carbon-emitting businesses to change their own policies.

Had Fink moved a decade ago to pull BlackRock’s funds out of companies that contribute to climate change, his clients would have been well served. In the past 10 years, companies in the S&P 500 energy sector had gained just 2 percent in total. In the same period, the broader S&P 500 nearly tripled.

In an interview, Fink said the decision developed from conversations with “business leaders and how they’re thinking about it, talking to different scientists, reading different research.” Fink asked BlackRock to research the economic impacts of climate change; it found that they are already appearing in a meaningful way in the form of higher insurance premiums, for fires and floods, and expects cities to have to pay more for their bonds.

Wherever he goes, he said, he is bombarded with climate questions from investors, often to the exclusion of issues that until recently were once considered more important. “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” he wrote in his letter.

He wrote that he anticipated a major shift, much sooner than many might imagine, in the way money will be allocated.

“This dynamic will accelerate as the next generation takes the helm of government and business,” he wrote. “As trillions of dollars shift to millennials over the next few decades, as they become CEOs and CIOs, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.”

While BlackRock makes its green push, the Trump administration is going in the opposite direction, repealing and weakening laws aimed at protecting the environment and promoting sustainability. Indeed, Fink’s effort appeared to be another example of the private sector pressing on issues that the White House has abandoned.

Still, Fink made plain that while he intends for the firm to consider climate risks, he would not pursue an across-the-board sale of energy companies that produce fossil fuels. Because of its sheer size, BlackRock will remain one of the world’s largest investors in fossil-fuel companies.

“Despite recent rapid advances in technology, the science does not yet exist to replace many of today’s essential uses of hydrocarbons,” he wrote. “We need to be mindful of the economic, scientific, social and political realities of the energy transition.”

BlackRock manages money for countries across the globe as well as US states and municipalities. It could face opposition for its new stance in areas that benefit from fossil fuels, like Middle East countries or states where oil has become a significant part of their economies.

Fink said that because much of the money BlackRock manages is invested in passive index funds like those that track the S&P 500, the firm was unable to simply sell shares in companies that it felt were not focused on sustainability. But he did say that the firm could do so in what are known as “actively managed funds,” in which BlackRock can choose which stocks are included.

BlackRock also plans to offer new passive funds — including target-date funds that are based on a person’s age and are meant to be used to prepare for retirement — that will not include fossil fuel companies. Investors will be able to choose these instead of more traditional funds. To the extent that fossil fuel companies are in an index, BlackRock plans to push them to consider their eventual transition to renewable energy. Fink said the company would vote against them if they are not moving fast enough.

“We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” he wrote.


2020 The New York Times Company

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The big shortcoming: A grumpy 2020 for global growth

PARIS -- US political clouds coupled with wider climate and digital transformations point to a tricky 2020 for the world economy, although experts say a lurch back to crisis is improbable.

The Organisation for Economic Cooperation and Development said last month that activity had been hobbled by weaker trade and investment in the past two years, as US President Donald Trump pursued a trade war with China.

The OECD expects global growth to dip in the coming year to 2.9 percent, its lowest level since the world recession of 2009.

Trump appears to have struck a truce with China for now, under a "phase one" pact announced this month, but pre-existing tariffs remain in place and it will take time to demobilize their effects.

More broadly, the OECD contrasted proactive actions taken by central banks with the policy foot-dragging by governments in the face of climate change and the march of technology.

Industrialists and investors are having to correct their climate strategies even as Trump sits firm in his policy of denial. Oil giant Saudi Aramco recently had to trim back the volume of its gigantic share offering.

The International Monetary Fund was a little more optimistic in its latest World Economic Outlook, forecasting 2020 growth of 3.4 percent but warning nevertheless of a "synchronized slowdown and uncertain recovery".

At a time of populism and protests around the world, politics will remain an economic wild card next year.

Trump heads into the November presidential election under an impeachment cloud, and Britain's Brexit divorce from the European Union will likely be sealed next month, following Prime Minister Boris Johnson's election triumph.

The rise of technological giants sitting on mountains of data is meanwhile challenging the distribution of wealth between governments and big business, and has the potential to reshape the world of work as artificial intelligence exploits that data.

The online arena has emerged as another front for Trump's trade wars, after he threatened tariffs on France over its digital tax imposed on the likes of Amazon, Facebook and Google. Europe is threatening a collective response.

BETWEEN HEAVEN AND HELL

Ludovic Subran, chief economist of German insurance giant Allianz, sees a global "purgatory of growth" coming up.

Any systemic shock next year "will probably not be born in finance, but will be exogenous, for example a big regulatory shock on personal data, or in relation to the climate", he said.

If Trump survives the impeachment process and wins a second term, he could "double the bet against China" at the risk of military confrontation, Subran added.

Trump and his potential challengers on the Democratic left are united in their hostility to the free-trade and liberalization agendas that, they argue, hollowed out industrial America over the past decades. 

The mistrust is felt well beyond the United States.

"We're not worried about how to overcome a cyclical crisis, we know what to do," said Ingo Kuebler, the staff representative at Mahle, a German automotive supplier that has already been forced to downsize as car buyers turn away from diesel engines.

"The big issue is transformation, digitalization, electric mobility," he told AFP, fretting that an influx of cheap Chinese car batteries means "we are dreading the loss of many jobs".

THE BIG INCOME GAP

Since the financial crisis a decade ago, central bank policies have led to negative interest rates spreading in some countries, squeezing bank profitability and inflating private debt.

With growth faltering, the debate about wealth distribution will likely become still more acute. Anger at inequality runs like a thread through protest movements from rich Hong Kong to developing Chile.

In 2018, according to Oxfam, 26 billionaires had as much money as the poorest half of the world. 

"Even when people seem to enjoy basic material comfort, they may still experience the same level of misery and unhappiness as the poorest," French academic Esther Duflo said in October after she won the Nobel Prize in economics.

US investor Steve Eisman of "The Big Short" fame thinks that another global crisis is unlikely, but the best that can be hoped for is a slow strangulation of growth.

"What will happen next time, whenever it does happen, will be your normal garden variety of recession where the economy slows and goes negative and people lose money. That'll be painful enough," Eisman told AFP.

"A systemic crisis? Once was enough for our lifetimes," he said, reflecting back on the implosion of 2007-2008 that made hundreds of millions for his hedge fund when he correctly foretold the US subprime collapse. 

The prescient strategy of Eisman and other investment mavericks was recounted in a book by journalist Michael Lewis and subsequent Oscar-winning movie.

Agence France-Presse

IMF warns global outlook 'precarious,' no room for policy mistakes

WASHINGTON - The world economy is slowing to its weakest pace since the global financial crisis, as the US-China trade war undercuts business confidence and investment, the IMF said Tuesday.

It warned that the outlook is beset by risks, and urged policymakers to work to find resolutions to trade disputes, since there are limited tools to respond to a new crisis.

"With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts.

The IMF for the past year has every three months cut projected growth for 2019 as trade conflicts worsened.

In its latest World Economic Outlook it trimmed the estimate by another two-tenths, to 3.0 percent. The report also lowered the 2020 forecast by a tenth to 3.4 percent. 

"At three percent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," Gopinath said.

In addition, the trade conflicts and a slowdown in auto sales worldwide means trade growth has slowed sharply, falling in the first half of the year to its weakest since 2012, with an estimated increase of just 1.1 percent this year after a 3.6 percent jump in 2018.

RUNNING LOW ON AMMO

While the US economy also has been hit by uncertainty -- largely created by President Donald Trump's trade offensive -- the world's largest economy remains a bright spot on the global stage, the report said.

After upgrading its US outlook in July, the latest WEO reversed course, and cutting the US forecast this year to 2.4 percent -- still above trend, but two-tenths below the July forecast.

In 2020, the IMF projects US GDP to expand by 2.1 percent, unchanged from the prior report.

"For the United States, trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus," Gopinath said.

Major central banks have taken steps to soften the blow to growth by lowering interest rates, without which the downturn would have been worse, she said. 

However, she cautioned that monetary policy "cannot be the only game in town" and governments, notably in countries like Germany, should take advantage of low rates to make investments to support growth.

"With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," Gopinath warned.

The US-China trade war alone is estimated to shrink the world economy by 0.8 percent in 2020, the IMF said.

The fund warned that risks to the outlook predominate, and the uncertainty around trade policy -- which causes businesses to hold off on investments and undermines confidence -- will take a larger chunk out of growth than the tariffs themselves

SLOWING AUTO SALES

"To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed," the report said.

But trade is not the only reason for the global slowdown: the report notes that in China's economy, for example, growth is moderating as intended amid slowing domestic demand.

Other major economies like Brazil, India, Mexico, Russia and South Africa are slowing this year due to "idiosyncratic reasons" but are expected to recover in 2020.

"A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade," the IMF said, which in addition to the higher tariffs and trade uncertainty is the result of the contracting auto industry. 

That slowdown has had an impact in Germany, China and India, the report said.

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Gold, Treasuries rise as recession, trade fears rattle investors

NEW YORK -- Declining stocks on Wall Street weighed down a global equities gauge on Tuesday on lingering worries about the US-China trade war, while demand for US Treasuries and precious metals rose on recession fears.

The US yield curve inversion deepened to levels not seen since 2007 and gold futures rose as recession concerns gripped investors. Silver touched a two-year high.

Stocks opened higher on Wall Street after US President Donald Trump said China had offered to resume trade talks, though uncertainty prevailed as Beijing declined to confirm Trump's assertion.

US stocks initially opened higher, building on Monday's advance after Trump's comments. China's foreign ministry, however, reiterated on Tuesday that it had not received any recent U.S. telephone calls on trade.

"It is going to be pretty confusing and unfortunately, without some kind of a major backpedaling on trade... the economy is going to suffer," said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

Bank shares, which tend to weaken in lower rate and soft economic environments, lost 1 percent on Wall Street.

The Dow Jones Industrial Average fell 120.93 points, or 0.47 percent, to 25,777.9, the S&P 500 lost 9.22 points, or 0.32 percent, to 2,869.16 and the Nasdaq Composite dropped 26.79 points, or 0.34 percent, to 7,826.95.

The pan-European STOXX 600 index rose 0.63 percent and MSCI's gauge of stocks across the globe gained 0.03 percent.

Emerging market stocks rose 0.39 percent. Nikkei futures lost 0.66 percent.

The deepening yield curve inversion reflects investor nervousness about a recession and uncertainties over the trade conflict between China and the United States.

"It's not a sign of confidence in inflation or a pick-up in growth," said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston.

Benchmark 10-year notes last rose 21/32 in price to yield 1.4744 percent, from 1.544 percent late on Monday.

The yield curve inversion also pressured the dollar.

"You have seen a push deeper into inversion in the 2s/10s curve. Today, it's hard to put your finger on one specific driver of that inversion - though that might be contributing to the general sense of risk-off in the market," said Brian Daingerfield, macro strategist at RBS Securities.

The dollar fell against the safe-haven Japanese yen while the euro declined against the greenback.

The dollar index fell 0.05 percent, with the euro down 0.1 percent to $1.1089.

The Japanese yen strengthened 0.35 percent versus the greenback at 105.77 per dollar, while Sterling was last trading at $1.2285, up 0.57 percent on the day.

Emerging market currencies suffered across the globe, with the Colombian peso brushing against its record low near 3,478 per dollar.

Oil prices rose, buoyed by expectations of a drawdown in US crude inventories, though gains were capped by worries about a recession and uncertainty over a China-US trade deal.

US crude rose 3.45 percent to $55.49 per barrel and Brent was last at $59.91, up 2.06 percent on the day.

Spot gold added 1.1 percent to $1,542.70 an ounce. Spot silver gained 3.14 percent to $18.18 an ounce after touching its highest since September 2017.

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Inverted what? Searches for obscure financial term spike on Google

Inverted what?

Searches on Google for "inverted yield curve" have spiked after the unusual bond market phenomenon presented itself last week for the first time in over 12 years and helped tank Wall Street amid chatter that an economic downturn was imminent.

Following a tweet from US President Donald Trump referencing the "CRAZY INVERTED YIELD CURVE!", the term made its way onto news websites and radio and television reports that rarely delve into financial topics. Even late-night TV star Stephen Colbert devoted a portion of his show trying to decipher what it means when the yield on 10-year US Treasury notes falls below those for 2-year notes.

As it happens, that abnormal bond market dynamic often precedes US recessions, and when it appeared last Wednesday for the first time since 2007, it rattled investors worried that a US-China trade war might kill both a record-long economic expansion and a decade-long bull market for stocks.

US web searches for "inverted yield curve" are on track in August for their highest month on record, and more than double the next highest month December 2005, according to Google's Google Trends analysis tool. December 2005 was the last time 2-year and 10-year Treasury notes entered an inversion trend, one that would continue through 2007 and be followed by the global financial crisis and the harshest recession since the Great Depression.

Bond yields are a main measure of the return the securities deliver to investors, and they are also a proxy for interest rates.

When the yields on bonds of different maturities are plotted on a graph, it produces a curve that typically has an upward slope because investors expect greater compensation for the risk of owning longer-maturity debt. An inversion, when shorter-dated yields are higher than longer-dated ones, implies that investors see greater risks in the near future.

Google Trends provides data on the frequency of searches during a time period relative to other time periods. It does not provide actual numbers of web searches.

After Google searches for "inverted yield curve" spiked in 2005, searches for the term entered a lull for over a decade until December 2018. That is when yields on 5-year notes dropped below yields on 2-year notes, setting off talk of a potential recession and questions about whether the more closely watched 10-year yield would invert, as it eventually did last week.

The US yield curve has been slowly flattening since 2013 or earlier, and while economists and central bank policy makers have hotly debated its significance, the trend has mostly gone unnoticed by the public.

The spread between US 2-year and 10-year note yields has slipped below zero before each of the last five US recessions, although it has taken anywhere from 12 to 24 months for the recession to occur. The curve's inversion often ended before a recession began, and the inversions did not predict the length or severity of an economic downturn.

The US yield curve has returned to its normal since last Wednesday's inversion, with benchmark 10-year notes on Monday yielding 1.611 percent, about 0.05 percentage points more than equivalent 2-year notes.

Economists and investors are watching to see if the yield curve again reverts and enters an inverted trend, which would increase concerns across Wall Street and put more pressure on the Federal Reserve to cut interest rates to bolster the economy.

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Water pollution can reduce economic growth by a third: World Bank

WASHINGTON -- Heavily polluted water is reducing economic growth by up to a third in some countries, a World Bank report said Tuesday, calling for action to address human and environmental harm.

The report relied on what the Bank said was the biggest-ever database assembled on global water quality using monitoring stations, satellite data and machine learning models.

"Clean water is a key factor for economic growth. Deteriorating water quality is stalling economic growth, worsening health conditions, reducing food production, and exacerbating poverty in many countries," said World Bank Group President David Malpass.

The report found that when Biological Oxygen Demand -- an index of the degree of organic pollution and a proxy for overall water pollution -- crosses a threshold of 8 milligrams per liter, GDP growth in downstream regions drops by 0.83 percentage points, about a third for the mean growth rate of 2.33 percent used in the study.

This is because of impacts on health, agriculture, and ecosystems and a "stark indication that there often trade-offs between benefits of economic production and environmental quality, and that the externalities... can be circular," the report said.

A key contributor to poor water quality is nitrogen, essential for agricultural production but which leaches into rivers and oceans where it creates hypoxia and dead zones, and in the air where it forms nitrous oxide, a greenhouse gas.

The report said that early exposure of children to nitrates affects their growth and brain development, reducing their health and earning potential.

For every additional kilogram of nitrogen fertilizer per hectare, yields may rise up to five percent, but childhood stunting increases as much as 19 percent and future adult earnings fall by up to two percent compared to those not affected.

And increased salinity as a result of man-made pressures such as irrigation, storm water runoff, leaching of fertilizer, and urban wastewater discharge is pushing down agricultural yields.

The report estimated enough food is lost to saline water each year to feed 170 million people, about the population of Bangladesh.

The authors divided their recommendations into three main areas: information campaigns to raise awareness, prevention efforts to stem some of the worst problems and investments to treat pollution once it has occurred, with more modern technologies like reverse-osmosis offering new pathways.

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Trump trade war worsens slowdown in global economy: analysts

WASHINGTON — President Donald Trump’s trade war is chilling business investment, confidence and trade flows across the world, a development that foreign leaders and business executives say is worsening a global economic slowdown that was already underway.

Recent softening in Europe, Australia and other parts of the world coincides with Trump’s intensified trade fight with China and other partners. Economists warn that further escalation by Trump — like tariffs on more Chinese goods or levies on foreign autos — could slow global growth to a crawl.

“With these trade tensions, the global economy, in a sense, is getting close to a crossroads,” said Ayhan Kose, the director of the World Bank’s Prospects Group.

Weakness in China, driven in part by fallout from the trade war, has spread to Germany, Australia and other nations, raising supply chain costs, chilling exports and worrying political and economic leaders.

On Tuesday, Mario Draghi, the president of the European Central Bank, said the bank was prepared to inject more stimulus into the eurozone economy to combat the economic slowdown.

The effects of Trump’s trade war have been particularly hard on Germany, Europe’s largest economy, which has been bracing for a decision about whether the United States will impose tariffs on auto imports. Trade anxiety has led to a decline in business sentiment and spending: Overall German industrial production contracted sharply in April, falling 1.9 percent on the month versus the 0.5 percent analysts expected.

“The risks that have been prominent throughout the past year, in particular geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, have not dissipated,” Draghi said in a speech Tuesday. “The prolongation of risks has weighed on exports and in particular on manufacturing.”

Trump lashed out at Draghi by name on Twitter, accusing him of trying to weaken Europe’s currency to get a leg up in global trade by making its goods cheaper to buy overseas.

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA,” Trump wrote on Twitter. “They have been getting away with this for years, along with China and others.”

The president’s aggressive approach to trading partners comes as developed and developing nations are already pulling back on the rapid globalization that dominated two decades of economic policymaking. Global flows of foreign direct investment fell by 13 percent last year, to their lowest level since the financial crisis, the United Nations Conference on Trade and Development reported last week.

It was the third consecutive annual decline, which officials blamed on multinational corporations bringing cash back to the United States after Trump’s 2017 tax overhaul. Officials warned that trade tensions posed a “downward risk” for a rebound in investment growth this year.

Trump has made steady use of tariffs to punish trading partners like China, Europe, Canada and Mexico that he says have destroyed American jobs by flooding the United States with cheap products and erecting unfair economic barriers at home. The president and his top officials insist that the trade war is lifting the US economy and that any slowdown in global growth is not related to the administration’s trade policies.

Treasury Secretary Steven Mnuchin said in an interview this month that he did not “think in any way that the slowdowns you’re seeing in parts of the world are a result of trade tensions at the moment.” He noted that growth in Asia and Europe had been tapering off before trade talks between the United States and China broke down in early May.

Trump has repeatedly cited China’s slowdown as proof that his trade war is working, telling reporters last week that the United States has “picked up $14 trillion in net worth of the United States.”

“And China has gone down probably by $20 trillion,” he continued. “There’s a tremendous gap.”

But a slowdown in the world’s second-largest economy — one that’s deeply enmeshed in global trade networks — affects other economies.

“China is the biggest trading nation in the world,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “The idea that you could slow down the global growth engine and not affect other countries is just not credible.”

Multinational companies are already shifting supply chains and delaying capital spending in response to Trump’s tariffs on Chinese goods and foreign metals.

Tom Linebarger, chairman and chief executive of diesel engine manufacturer Cummins, said last week that his company had lost business for part of its operation in China as a result of the trade war. The Indiana company is changing its sourcing practices to minimize exposure to China, and Linebarger said its costs from tariffs now exceeded the benefits from the corporate tax cuts Trump signed in 2017.

“The tariffs that are in place now, and which may be in place for some time, are a significant burden on US businesses and farms,” Linebarger said.

Data increasingly suggest trade tensions are weighing on economic confidence, globally and in the United States.

A Federal Reserve Bank of New York manufacturing survey registered its worst drop ever on Monday, which many economists blamed on Trump’s threats this month to impose tariffs on Mexican imports as punishment for failing to curb unauthorized immigration. While those tariffs were averted, the chance that Trump could make a similar move against another trading partner has caught the attention of global companies and foreign leaders.

The trade war is having “a much bigger impact” on business hiring and investment in the United States than most analysts think, Deutsche Bank wrote in a research note on Monday. Several measures of policy uncertainty, compiled by economists Scott R. Baker of Northwestern University, Nicholas Bloom of Stanford University and Steven J. Davis of the University of Chicago, have spiked with the increased tensions.

On Tuesday, Trump said on Twitter that he had spoken by phone to President Xi Jinping of China and that the two leaders would have an “extended” meeting next week at the Group of 20 summit in Japan. Those comments could help calm global trade fears, which had risen after the United States accused China of breaking a trade deal last month and Trump raised tariffs on $200 billion worth of Chinese goods as punishment.

But no agreement is guaranteed, and Trump has threatened to impose tariffs on an additional $300 billion of Chinese goods if Xi does not agree to the original deal. The president has already placed import taxes on $250 billion worth of products from China and has hit trading partners with steel and aluminum tariffs and threatened tariffs on foreign autos from Europe and Japan.

The World Bank cut its forecast for global growth by 0.3 percentage points for this year in response to unexpected weakness in trade and manufacturing across advanced and developing economies. Global trade growth has slowed to its lowest rate since the 2008 financial crisis as exports from Europe and Japan have plummeted, particularly to China.

The bank noted that heightened policy uncertainty, including trade tensions, had been accompanied by slowing global investment and weakening confidence. It warned in a report this month that risks to its outlook were “firmly on the downside, in part reflecting the possibility of destabilizing policy developments, including a further escalation of trade tensions between major economies.”

International Monetary Fund economists estimate that if Trump follows through on his threat to broaden the Chinese trade spat, tariffs added this year alone will subtract 0.3 percent off global gross domestic product in 2020, with an additional 0.2 percent drag coming from tariffs the administration put in place last year.

Manufacturing, which is especially vulnerable to trade, is slowing across advanced economies even as service industries hold up. Factory gauges have dipped lower across Europe and are wavering in Japan. In the United States, the Institute for Supply Management’s factory index dropped to its lowest reading of Trump’s presidency in May.

Trade policies aren’t the only culprit behind slowing production. A continuing, structural slowdown in Chinese growth and tensions from Britain’s attempted exit from the European Union are among other factors.

China posted its weakest economic growth in 28 years in 2018, a pullback analysts blame partly on structural reforms and long-running trends and partly on the trade spat. Analysts at Moody’s Investors Service expect a further slowdown in 2019, to 6.2 percent from 6.6 percent, amid continued trade uncertainty.

Europe, where the IMF estimates 70 percent of exports are links in global supply chains, is particularly sensitive to trade disputes. And Germany highlights how the trade war between the United States and China can spill over.

The nation’s car industry is the backbone of its economy and is dependent on China for growth. As trade tensions exacerbate China’s economic weakening, manufacturers in Germany pay the price.

Volkswagen, the world’s largest carmaker, said last week that sales in China fell 7 percent from January through May, to about 1.2 million vehicles. Largely because of China, Volkswagen’s global sales fell 5 percent during the same period.

“We are experiencing the biggest decline in the world auto market in 20 years,” Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen, said in a report. If Trump follows through on threats to impose further tariffs on China, Dudenhöffer said, “there is danger of a global auto crisis.”

Germany’s central bank has slashed its forecast for growth this year to 0.6 percent from 1.6 percent. That bleak change was “mainly due to the downturn in industry, where lackluster export growth is taking a toll.”

“The fear factor, the uncertainty, is denting willingness to spend, willingness to invest,’’ said Carsten Brzeski, chief economist for Germany and Austria at ING in Frankfurt. “It’s therefore undermining growth in the eurozone.”

And in Australia, where an almost 28-year-old expansion is looking less secure and the central bank recently cut rates for the first time since 2016, economic officials are watching trade wars warily. The governor of the Reserve Bank of Australia, Philip Lowe, called international trade disputes “the main downside risk” in a recent news conference.

If coming trade negotiations don’t end in a resolution, the United States and its companies could also pay a price, leaders of the Business Roundtable, a corporate lobbying group in Washington, warned last week.

“The biggest self-inflicted risk to growth today would be trade going south,” said Jamie Dimon, chief executive at JPMorgan Chase.


2019 New York Times News Service

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