This Week In The Economy: Labour’s Brexit Conditions, Eurozone Downbeat, Central Bank Recap, U.S.’ Trade Gauntlet
Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.
Labour Lays Out Conditions To Help May Get Brexit Over Finish Line
The UK’s Labour Party leader Jeremy Corbyn this week laid out five conditions that have to be met for his party to help the government get a Brexit deal through Parliament, laying out for the first time the cost should Prime Minister require votes from the opposition for her agreement with the EU.
Labour’s five demands for the Brexit deal are:
- A permanent and comprehensive UK-wide customs union, arguing that a customs union is necessary to ensure “frictionless trade” for businesses and consumers, “and is the only viable way to ensure there is no hard border on the island of Ireland.”
- Close alignment with the Single Market.
- Alignment of UK standards with EU rights and protections.
- Clear commitments on participation in EU agencies and funding programmes.
- Unambiguous agreements on the detail of future security arrangements, including access to the European Arrest Warrant.
Meanwhile the Bank of England’s policymaking chose to leave interest rates unchanged this week, noting how the pace of UK economic growth slowed in late 2018 and seems to have slipped further back in early 2019. “This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home,” the BOE said.
Looking ahead, the UK central bank warned the country’s economic outlook will continue to depend significantly on its exit from the EU is managed, in particular: the new trading arrangements; whether the transition is abrupt or smooth; and how households, businesses and financial markets respond.
Slower Euro Area Economic Growth Baked-In For 2019
Data released this week showed retail sales declined by 1.6% in December compared to the previous, making it no surprise when the European Commission in a separate report downgraded its expectations for economic growth this year and in 2020. In its ‘Winter 2019 Economic Forecast’ report, the EC now projects Euro Area GDP to grow by 1.3% in 2019 and 1.6% in 2020 (the Autumn Forecast was for +1.9% in 2019; +1.7% in 2020).
“This revision mirrors a weaker carry-over from the last quarters of 2018 and a slightly weaker momentum in 2019.” — European Commission
The pace of economic activity in Germany is expected to slow from a projected +1.5% in 2018 to +1.1% this year. The EC said the slowdown in world trade and global economic growth this year and next means Germany’s export growth “is unlikely to soon” return to the boom years of 2014–2017 — which is also likely to restrain new business investment. “Indeed, high frequency indicators point to a continued deterioration in business sentiment in the manufacturing sector, with declining orders and a worsening export outlook,” the report said.
Concerns About Global Growth, Ongoing Trade Tensions Prevalent in Central Bank Decisions This Week
There were a raft of central bank meetings this week, with the majority choosing to leave monetary policy unchanged or cutting key interest rates over concerns about the decelerating global economy and the drag from trade conflicts.
Senior officials at Brazil’s central bank voted unanimously to leave its Selic rate unchanged, noting a “challenging” global outlook. The Reserve Bank of India chose to lower interest rates, and shifted its monetary policy stance to neutral from “calibrated” rate increases. It described risks to India’s economic growth this year as “somewhat to the downside,” noting that trade tensions and associated uncertainties appear to be moderating global growth.
The Banco de Mexico cited the “lower dynamism” in most advanced and some emerging market economies in its decision to keeps rates unchanged, and how that has led to downward revisions in the outlook for world growth this year and next. “The current environment continues to pose significant risks in the medium and long terms that could affect the country’s macroeconomic conditions,” the central bank warned.
Speaking Of Which — China And U.S. To Resume Trade Talks Next Week
After some small signs of progress during last month’s negotiations, senior Chinese and U.S. officials are set to resume negotiations to end trade hostilities next week in Beijing. The U.S. delegation will be led by Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer, leaders of the dovish and hawkish camps, respectively, within the Trump administration when it comes to China.
The meeting comes on the back of news this week that the U.S. goods trade deficit with China widened to $382 billion through the first 11 months of 2018, already outpacing the $375 billion deficit reported for 2017. In November, U.S. exports to China decreased $0.1 billion to $7.4 billion and imports decreased $2.9 billion to $42.8 billion.
Both sides are racing to reach an accord ahead of the March 1 deadline when the U.S. has threatened to impose more punitive duties on goods from China.
Meanwhile a group of U.S. lawmakers in the House and Senate this week proposed legislation that would limit the president’s ability to impose higher tariffs for national security reasons. The Trade Security Act would reform Section 232 of the 1962 Trade Expansion Act by requiring the Defense Department to provide the national security basis for new tariffs. It would also increase congressional oversight of the process.
As there still the matter of Congress’ ratification of the revised trade agreement between the Canada, Mexico, and the United States plus looming trade talks with the EU — both of which are also set for a difficult road ahead. Buckle up.
