Trump's Economy Next Year Won't Be Much Better Than Obama's Was - Canadanewsmedia
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Trump's Economy Next Year Won't Be Much Better Than Obama's Was

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President Donald Trump’s biggest success has been the economy. But trade wars, rising interest rates, and the wearing off of fiscal effects is expected to bring Trump’s economic boom down a peg, and not much better than his predecessor’s two years prior. Photographer: Andrew Harrer/Bloomberg

This is really as good as it gets for the U.S. economy. It’s all downhill from here.

Not that downhill means lower incomes and a recession.

It just means that 2019 is going to look more like 2016 in terms of growth rates.

President Trump likes to boast about the U.S. economy growing over 4%. But that is based on quarterly growth rates compared with the previous year. On an annualized basis, the U.S. economy isn’t all that much better than it was in 2014 and 2015, when GDP came in at 2.4% and 2.6%, respectively. This year’s growth rate will hit somewhere between 2.8% and 3%, thanks to tax cuts and other fiscal stimulus. But next year, if BNP Paribas’s calculations are correct, U.S. GDP slows to 1.8%, which is not a heck of a lot better than President Obama’s last year in office, when GDP ended the year up 1.6%.

Most economists have pegged next year’s GDP at more than 2.2%, but trade wars and the wearing-off of fiscal stimulus are toning down Trump’s economic miracle.

“Downside risks are likely to remain a key focus over the months ahead,” says Robert McAdie, global head of strategy research for BNP Paribas in London. Its GDP forecast of Trump barely beating Obama is below market consensus.

“Global economic growth looks more challenging for 2019 than 2018,” McAdie says, citing “fading tailwinds” and the China-U.S. trade war.

BNP lowered its growth forecast for both the U.S. and China by 0.2 percentage points. The close shave on both economic superpowers means global growth of around 3.4% next year, down from 3.6% in this year’s forecast.

The prospect for a more challenging year ahead has not been fully appreciated yet by most investors. Wall Street is generally upbeat about low taxes and a peak dollar, and believe China and the U.S. will eventually work things out.

But McAdie and others at BNP Paribas wrote in a report to clients on Wednesday that investors should be prepared to get defensive. A growth slowdown will be the theme for 2019, even though the economy will still be in growth mode.

Jerome Powell, chairman of the Federal Reserve. The Fed is the bigger wet blanket in 2019. Photographer: Andrew Harrer/Bloomberg

It’s worth noting that the coming slowdown has more to do with Jerome Powell than trade tariffs. Global monetary tightening is expected to be a larger headwind next year as the Fed raises rates again and winds down more of its balance sheet alongside the Bank of Japan and the European Central Bank.

Those three central banks have been propping up security markets since at least 2009. The Fed was the first to do so.

The strength in the dollar index due to higher Treasury yields could become troublesome in the near-term. A stronger dollar makes U.S. exports less competitive and exacerbates an already enormous trade gap with China. Trump could up the ante by blaming other countries and go after them next.

The Fed may be the wet blanket in 2019, but that is assuming Trump doesn’t slap China with tariffs on everything it sells to the United States. Some of those goods are made for American companies shipping to consumers back home.

“We expect more protectionism in U.S.-China trade,” says Mike Gapen, an economist for Barclays Capital in New York.

Protectionism is often associated with lower employment as job gains in protected industries like steel are offset by losses elsewhere. A 0.2% decline in U.S. GDP equates to about 250,000 jobs, according to Barclays, which estimates that a higher 0.4% GDP drop in China could yield similar losses. Whether growth declines are associated with permanently lower employment in a certain sector depends on the relationship between changes in trade volumes, rates of productivity growth, and labor participation rates.

“Trump needs to change his attitude or the U.S. will become the biggest loser of this trade war,” says Naeem Aslam, chief market strategist for ThinkMarkets and a Forbes contributor. “I think that we are moving fast toward a moment when the U.S. loses control as other countries gain a stronger position from working together (against the U.S.).

Trade war outcomes are just educated guesses at this point. Worst-case prognostications have become a favorite past time of Trump haters on social media.

But for those assuming the worst from trade tariffs, a hawkish Fed and tighter liquidity in Europe and Japan added to the mix make it easy to forecast lower global growth. Whether it slows to Obama levels depends on the Fed, Trump and Xi Jinping.

Happy times. A trader reacts on the floor of the New York Stock Exchange in New York, U.S., on Friday, Aug. 31, 2018. Wall Street still largely likes what this president has done with the economy: deregulate and cut taxes. Photographer: Michael Nagle/Bloomberg

Take one look at the stock market and it is easy to think the U.S. is unstoppable. Trump seems to think so. He recently joked in a jab to Obama that he has found his “magic wand,” a reference to Obama’s comment about Trump needing a magic wand to bring certain manufacturing jobs back to the States.

In financial markets, there has been a disconnect between the performance of the U.S. stock market and other markets. The Nasdaq is up 15% this year, while the MSCI Asia-Pacific is having its longest sell-off in 16 years. The Shanghai Composite index is now at a four-year low, and down some 25% from the January high point. Some European equity markets are experiencing corrections of a lesser degree but are still money losers this year. Germany’s DAX index is down 12%, reflecting trade tensions with the U.S. The FTSE 100 index is down 8% from its high in May.

Trump’s America is doing well based on nearly every business and consumer sentiment index out there.

Despite his low approval numbers, he is rewriting the rules of trade at the only time possible—in the middle of a bull market, the longest bull market in history.

But as BNP Paribas warned this week, there are “hazards ahead.”

The IMF’s Christine Lagarde stepped up her warnings recently about how the escalating U.S.-China trade war could deliver a shock to poorer economies. Trump is set to whack China with another $200 billion in tariffs.

If Trump’s GDP does fall to near-Obama levels, it would be a big blow to his view of his presidency, a presidency which he has graded A+.

For the president, the economy is booming thanks to his policies. Nearly everyone in the market would agree with him. But this economic recovery has been in place long before Trump came to town. While few believe that it was Obama’s economic policies that kept the U.S. growing post Great Recession (Wall Street knows it was the Fed), Trump’s argument that his economy policy has been better for growth than Obama’s starts to look weaker next year. Political commentators won’t care about business cycles. They will use a 1.8% growth rate, if BNP is right, as yet another example of Trump’s exaggerated claims, a year before the 2020 elections.

BNP’s 1.8% GDP is not written in stone.

“The growth risk is a more protracted trade war involving the EU and Japan,” says Neil MacKinnon, an economist for VTB Capital in London. “That would derail the global economy and puncture the performance of U.S. equities, already historically overvalued,” he says.

In other words, if BNP is right, and the trade wars get worse, a bear market in equities goes global rather than spotty if Trump’s economy doesn’t beat Obama’s next year.

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IMF warns storms clouds gathering for global economy – The Globe and Mail

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One of the International Monetary Fund’s top officials warned on Tuesday that storm clouds were gathering over the global economy and that governments and central banks might not be well- equipped to cope.

The fund had been urging governments to “fix the roof” during a sunny last two years for the world economy, IMF First Deputy Managing Director David Lipton said.

“But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete,” he said at a banking conference hosted by Bloomberg.

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He also warned that strains could leave policymakers under pressure and in uncharted waters.

“Central banks would likely end up exploring ever-more unconventional measures. But with their effectiveness uncertain, we ought to be concerned about the potency of monetary policy.”

Many governments won’t have much room for manoeuvre, either, having already racked up high debts.

“We should not expect governments to end up with the ample space to respond to a downturn that they had 10 years ago,” Lipton said. Stimulus may also be a hard sell politically, considering the financial burden it creates, he said.

The biggest immediate risk, though, is the current trade war between the United States and China. If all of the threatened tariffs are put in place, as much as three-quarters of a percent of global GDP would be lost by 2020, the IMF has estimated.

“That would be a self-inflicted wound. So it is vital that this ceasefire (recently announced between Washington and Beijing) leads to a durable agreement that avoids an intensification or spread of tensions.”

If it doesn’t and a stalemate sets in, there could be a damaging “fragmentation” of the global economy that causes a downturn, he said.

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Goodyear halts tire production in Venezuela as economy slips – Prince George Citizen

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VALENCIA, Venezuela — Goodyear Tire & Rubber Co. is halting production in Venezuela, making it the latest international corporation to abandon a South American nation in economic crisis, officials said Monday.

Spokesman Eduardo Arguelles told The Associated Press that Goodyear-Venezuela had made the “difficult decision” to no longer produce tires in the country, which has seen an economic contraction worse than the U.S. Great Depression.

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“Our goal had been to maintain its operations, but economic conditions and U.S. sanctions have made this impossible,” Arguelles said.

The company had endured tens of millions in losses in recent years as the Venezuelan bolivar plummeted in value against the U.S. dollar. The company based in Akron, Ohio, moved to deconsolidate its Venezuelan subsidiary in the fourth quarter of 2015, but continued to operate with a staff of about 1,100 from the depressed industrial city of Valencia.

Workers who arrived at the plant Monday were stunned to find it was no longer in operation.

“They closed doors without saying anything,” said Luis Aponte, a union worker who said government workers were on site assessing the situation.

There was no immediate response from the government.

The announcement came after a letter issued “to whom it may concern” circulated online stating the company had been forced to cease operations and that starting Monday no one in Venezuela would be authorized to continue producing the company’s products.

The letter also said Goodyear would fulfil its financial obligations to workers.

Goodyear’s retreat from Venezuela adds it to a growing list of corporations that have ceased operations in the country. Some of those enterprises, like General Motors, had assets including factories and vehicles seized by the government. Others chose to cut their losses because shortages, inflation and currency and prices controls made business difficult.

Kellogg, Bridgestone, Kimberly-Clark and General Mills have all closed or reduced operations in recent years.

Julian Rodriguez, 62, said he spent over three decades working for Goodyear and was unsure how he’d make ends meet after losing his only source of income.

“This is a grave situation,” he said.

The International Monetary Fund has estimated that inflation in Venezuela could top 1 million per cent by the year’s end.

President Nicolas Maduro activated an economic recovery plan in August that including increasing the minimum wage and printing a new currency, among other measures, but thus far the economy has shown few signs of improvement.

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Premier Ford Meets with Mayors to Grow the Economy and Deliver Better Services – Government of Ontario News

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Ontario’s Government for the People Renews Commitment to Municipal Partnerships

TORONTO — Premier Doug Ford met with Ontario mayors at Queen’s Park today to discuss their shared priorities, such as improving transportation infrastructure, increasing the supply of housing to bring down costs and making sure that municipalities are open for business.

“Ontario has some fantastic mayors, and we have some great working relationships. Today, we strengthened those relationships,” said Ford. “We’re going to work together to get things done. We’re going to build transit and infrastructure. We’re going to make sure everyone can afford a place to call home. And we’re going to show the world that Ontario is open for business.”

In a series of meetings throughout the day, Premier Ford met with Guelph Mayor Cam Guthrie; Kawartha Lakes Mayor Andy Letham; London Mayor Ed Holder; Mississauga Mayor Bonnie Crombie; Oro-Medonte Mayor Harry Hughes; Ottawa Mayor Jim Watson; and Windsor Mayor Drew Dilkens.

During one-on-one meetings with each mayor, Premier Ford discussed upcoming plans for the private retail sale of cannabis and restated his commitment to public health, public safety and protecting Ontario’s youth. He also discussed ways to deliver better services to the people of this province and get more money back in the taxpayer’s pocket.

All leaders committed to meeting regularly to make progress on the issues that matter most to people across Ontario’s municipalities.

“When it comes to Ontarians’ day-to-day lives, municipalities make the most direct impact,” said Ford. “Today, I had some great conversations with Ontario mayors about how to tackle the issues that people face every day. We’re committed to working for the people and respecting the taxpayer.”

For high-resolution photos from the meetings, click here.

Quick Facts

  • There are 444 municipal governments in Ontario.
  • Ontario’s Government for the People recently signed a joint memorandum of understanding (MOU) with the Association of Municipalities of Ontario (AMO) committing to regular consultation on provincial legislation or regulations that have a significant impact on municipalities.

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