- 2019-01-25
The US economy will "stall"
The chief economist of the International Monetary Fund (IMF) said that the United States may be affected by a sharp slowdown in economic growth in other parts of the world. There are signs that more and more economies are losing growth momentum.
Maurice Obstfeld, who retired at the end of 2018, said in an interview that he does not think there will be a recession in the United States, but he expects that as the impact of tax cuts and spending growth diminishes, the U.S. Economic growth will gradually slow down in 2019 and 2020.
Potential factors for the U.S. economic slowdown
The recently released U.S. non-agricultural employment data for November 2018 showed that the non-agricultural employment population increased by 155,000, which was much lower than expected and also significantly lower than the previous value. The hourly wage growth rate was also lower than expected.
Although the U.S. job market has been very hot recently, the weakness of indicators such as "small non-agricultural" and the number of first-time jobless claims shows that even the current best performance of the U.S. economy is still unstable. The disappointing non-agricultural data further deepened the pessimism.
In the financial market, since October 2018, U.S. stocks have gone out of a roller coaster-like volatility market, and the inversion of U.S. bond spreads has added fuel to the fire, further increasing the downside risk of the economy.
In recent days, market investors’ expectations of the Federal Reserve’s interest rate hike have plummeted.
Obsfield also believes that from the recent statements of Fed officials and market expectations, it can be seen that the expected rate of interest rate hikes "will be more moderate than we had imagined in previous months." At the same time, he also said that the current tensions may be destructive, but he does not believe that the U.S. economy will experience the Great Depression of the 1930s, and he still expects that the United States will expand beyond its potential next year.
The global economy is like a deflating balloon
In addition to the endogenous factors of the U.S. economy, Obsfield believes that the overall slowdown of the global economy is also a factor that is counterproductive to the U.S. economy.
He predicted: "The economy in other parts of the world seems to have shown signs of weakness. This situation will in turn affect the United States."
As early as November 2018, the IMF issued a warning to the world that the growth rate of several major economies in the world is slowing down, and emerging markets and developing economies will be under pressure in 2019. The economy in 2018 and 2019 Growth will hit the top of the cycle. The strengthening of the U.S. dollar and trade issues brought about by interest rate hikes will be detrimental to the growth of emerging markets.
The OECD also lowered its global economic outlook for the next three years in November. It is expected that global GDP will fall by 0.8% from the benchmark, of which the United States will fall by more than 1%. Previously announced Japan, Germany, France, Italy and other countries' November manufacturing PMI index all showed weakness, and the recently announced China PMI index and import and export data also showed a slight contraction.
The emerging weakness in Asia and the setbacks in Europe show that the global economy is beginning to decelerate under the leadership of several major economies.
As the Federal Reserve prepares to raise short-term interest rates in December 2018, concerns about slowing growth in Asia and Europe have begun to affect US policy prospects. Although the US unemployment rate is hovering at its lowest level since the 1960s, the manufacturing growth indicators of Germany, France, Italy, Japan, and South Korea declined in November, while China’s export order indicators have begun to shrink.
The Fed’s policymakers have recently discussed the increasing “downside” risks of the generally positive US economy. These include a slowdown in overseas economies, turmoil in financial markets, and continuing concerns about the US-China trade war.
Obstfeld specifically pointed out that in many Asian economies the third quarter economic data was weak, and European economic growth suffered setbacks, such as the decline in German output in the third quarter.
He said: "We have always predicted that the U.S. economic growth rate in 2019 will be slightly lower than the level of 2018. Part of the reason is the withdrawal or reversal of certain fiscal incentives. According to the data we have seen, the situation in 2020 may be different. It is more acute than in 2019. But in terms of the signs we are seeing, the economic slowdown outside the United States seems more dramatic."
Obstfeld emphasized that he still expects the expansion of the U.S. economy in 2019 to exceed its potential. The "nightmare scenario" in the United States will be a strong rise in inflation, and the Fed will raise interest rates in response, and fiscal policy will happen to reverse at the same time.
Obstfeld, who will be replaced by Harvard professor Gita Gopinath, joined the IMF in 2015. He said that at the time, the “multilateralism” system was largely unquestioned. This situation has changed since Donald Trump was elected President of the United States. "When dealing with international economic relations, there has been a more conflicting approach that we have not seen before." He said. "This is indeed a big change."
Despite the apparent relaxation during the G20 summit, the trade tensions between China and the United States are still quite serious. Obstfeld said it is important to "attract" China to join a global framework in which Beijing changes some trade practices while other countries leave room for China's "legitimate economic goals."
He added that China has “significant room” for further opening up, allowing the market to play a greater role in promoting growth and stability, as well as increasing exchange rate flexibility. More openness to foreign investment and reform of its intellectual property system (which are the focus of complaints in Western countries) are likely to be in China's interest.
"It is in the interest of all parties to embed them in the multilateral system," he said. "I don't think conflict contributes to this evolution."