EuroWire November 2017

Transatlantic cable

USA President Donald Trump’s harsh rhetoric regarding China’s trade policies has yet to result in a change in USA policy, and his April meeting with Chinese President Xi Jinping seems to have cooled tensions. Most notably, talk of abandoning the USA's “One China” policy also seems to have dissipated, and Mr Trump has backed away from his campaign pledge to designate China a currency manipulator. United States Recent data supports the assumption that the recovery in capital expenditure that began before the presidential election of November 2016 is continuing, and rising capital goods shipments suggest a broad-based recovery in demand for business equipment. If, as we expect, the rebound in corporate pro tability that began in mid-2016 is sustained, nominal capital equipment outlays may grow at more than double the 1.4 per cent rate seen over the past four years. Meanwhile, solid gains in average hourly earnings should support an increase in consumer spending of 2.25 per cent to 2.5 per cent in real terms. We expect that solid demand underpinnings will help growth in USA gross domestic product (GDP) to resume its two per cent expansion trend over 2017 as a whole. On the other hand, we see little evidence that a “Trump re ation” will boost growth out of its post- nancial-crisis lassitude; not, at least, over the coming year. † Their analysis of the USA economy obliged the T Rowe Price economists to reference the extraordinary political climate in Washington over the past year. In particular, the failure of the Republican e ort to replace the Obama-era A ordable Care Act dealt a setback to the broader legislative agenda of President Trump’s party. The ongoing investigation into the Trump campaign’s ties to Russia is also retarding the administration’s agenda. With tax and infrastructure measures unlikely to be addressed before the New Year, Messrs Levenson and Schmidt are doubtful that any actual scal policy stimulus is on the near horizon. To be sure, they wrote, “The new administration’s plans for deregulation and tax cuts have awakened ‘animal spirits,’ as evident in stronger business and consumer con dence gauges. But these improvements have yet to translate into acceleration in real demand.” † In closing it was noted that the USA Federal Reserve recently made explicit that its target of two per cent in ation in personal consumption expenditures is a midpoint, not a ceiling. This suggests that delivering two per cent in ation over the medium term will all but require the Fed to accept spells of slightly above-target in ation.

The Inquirer reported that the cost of the inspection and any associated expenses will be borne by the supplier of the metal, SteelFab Inc, of Charlotte, North Carolina. The hitch materialised about a year before projected completion of the building.

The world economy

Following the acceleration in global growth of second-half 2016, ‘a modest and synchronised global expansion’

“The US economy had a slow start to the year. However, most evidence suggests that residual seasonality in the data and other temporary factors were to blame. “We expect that solid demand underpinnings will help USA gross domestic product growth revert to its two per cent expansion trend over 2017 as a whole.” This was the view in late summer of Alan Levenson, chief USA economist for the Baltimore-based brokerage T Rowe Price, and the rm’s chief international economist Nikolaj Schmidt. The two economists also turned their attention to Europe and China – the other leading players in a continuing “modest and synchronised global expansion.” Here are synopses of how Messrs Levenson and Schmidt see the trends in global growth. (“Expansion Continues, but New Caution Signs Crop Up Across the World”) Europe While recent purchasing managers’ index readings point to a solid expansion, growth in Europe is likely to remain moderate. The victory of pro-European Union (EU) forces in the French election bolstered prospects for the Eurozone and induced little gyration in the euro. At the same time, stabilisation in the currency since the start of the year has weakened the tailwind to exports. Although the improvement in the European labour market has been consistent, wage growth has been anaemic. And, of course, despite tfully hopeful indications Brexit is not yet a settled issue. China Given that Chinese demand is an important driver of economies as diverse as Malaysia, Saudi Arabia and Chile, stimulus measures undertaken by Beijing in early 2016 continue to have an underappreciated e ect on growth not only in China but also globally. But ongoing monetary tightening in China should eventually weigh on growth somewhat. The new head of the China Banking Regulatory Commission has launched an investigation into risky assets held by banks. Chinese o cials are moving slowly, however, trying to push the cost of borrowing higher without generating a liquidity squeeze. Controls on out ows appear to be keeping currency volatility to a minimum. For now, the housing sector is also holding up, boosted by reduced inventory, although it will probably slow eventually.

Dorothy Fabian USA Editor

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November 2017