Wednesday, December 05, 2018

World Economy Facing More Challenges Next Year as Growth Woes Continue Across the Board
By Xiao Xin
Global Times
2018/12/4 18:32:42

After having experienced a tumultuous year, highlighted by the China-US trade dispute, the world economy may be facing grimmer prospects in 2019.

In a fresh sign of mounting growth woes, Federal Reserve Chair Jerome Powell said last week that interest rates are "just below" neutral, a distinct change from his remarks in early October that the Fed was "a long way" from neutral.

The change in phrasing by Powell, who has been under fire from US President Donald Trump about rate hikes, is considered a hint that Fed rate hikes may slow.

The significant change in the Fed's rate path apparently points to concerns that US economic growth might not hold up if the current monetary policy continues into the new year.

The news follows General Motors' recent announcement that it will lay off 14,000 workers and close five facilities in North America, which the car company said would prepare it for the future world of autonomous and electric vehicles. This move inevitably deepened global recession fears.

Also, the recent slump in crude oil prices indicates slowing demand growth, a portent of sluggish global GDP expansion.

The Chinese economy, for its part, is also under downward pressure as its quest for quality growth will continue.

A meeting between the leaders of China and the US on Saturday on the sidelines of the G20 summit in Argentina produced a consensus on economic and trade issues, as the two countries agreed to avoid an escalation of trade restrictions. But there are still concerns over a 90-day deadline - according to a White House statement regarding the meeting - to reach a broader trade agreement.

Challenges facing the world's two largest economies as well as uncertainties clouding the rest of the world are stoking fears of a gloomier global economic outlook in 2019.

In an update to its World Economic Outlook in October, the IMF already ratcheted down its July forecast of 3.9 percent global GDP growth for 2019 to 3.7 percent. It cited a confluence of factors including the trade dispute between the world's two largest economies, a weaker eurozone, specific conditions in the UK and Japan, and rising interest rates which would result in capital outflows from some emerging markets. While leaving the 2018 growth estimates for China and the US unchanged at 6.6 percent and 2.9 percent, respectively, the fund cut its 2019 growth forecasts for the two economies. China was forecast to grow 6.2 percent, instead of 6.4 percent, while the forecast of US expansion was eased to 2.5 percent, from 2.7 percent.

With the Fed possibly slowing its pace of rate hikes, interest rates will still trend upward. There's thus a strong case that the global economic outlook will darken over the next year.

The author is a reporter with the Global Times.

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