Global economy unsettled by trade policy turbulence – NAB

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In view of the analysts at National Australia Bank, the global outlook has deteriorated.

Key Quotes

“Financial markets hit a pothole in May following an escalation of the US-China trade dispute and the short-lived US threat to raise tariffs on imports from Mexico, although more dovish expectations around central bank policy have helped support share markets.”

“NAB has revised down its forecast for the US Fed funds rate; we now expect it will be 50bps lower by the end of 2019 (previously we had expected no change) although the risk is that there will be more cuts rather than fewer.”

“The latest data confirm that major AE growth strengthened in Q1. However, this is unlikely to be sustained and we expect growth to ease over the rest of the year. This is mainly due to a fading impact from last year’s US fiscal stimulus, the impact of trade tensions, ongoing Brexit uncertainty and the planned increase in Japan’s Value Added Tax later in the year.”

“Emerging market (EM) economies are more trade exposed than the AEs and therefore the increase in trade tensions between the United States and China are a negative.”

“We have again lowered our global growth forecasts – to 3.2% in 2019 (from 3.3%) and to 3.3% in 2020 (from 3.4%) – due to an expectation that last month’s trade policy events will negatively affect business sentiment and investment for an extended period of time.”

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