U.S. Economic Growth Forecasts
The Wall Street Journal’s monthly survey of private economists see now the average estimate for U.S. economic growth this year to have increased to 3 percent, up from projections of 2.9 percent last month and 2.4 percent a year ago.
The survey of private economists also expects the unemployment rate falling to 3.6 percent by June 2019, which would be the lowest unemployment rate in nearly 50 years. The jobless rate in July was 3.9 percent.
The average forecast for growth in 2019 was 2.4 percent, little changed in recent months. By 2020, the average forecaster projects economic growth will slow to 1.8 percent, which is down from 2 percent earlier this year.
The Federal Reserve, the Congressional Budget Office and the International Monetary Fund all project a slowdown from the growth rate of 2018. The Fed, for example, sees 2 percent growth in 2020 and 1.8 percent growth in the long run.
U.S. wholesale inflation (PPI) pressures were surprisingly subdued in July, with producer prices for final demand remaining unchanged after advancing 0.3 percent in June and 0.5 percent in May. On a yearly basis, producer prices grew 3.3 percent and the core index rose 2.7 percent.
The most significant piece of U.S. data in what’s been so far an uneventful summer week comes today with the U.S. Consumer Price Index (CPI), which is forecast to rise 3.0 percent year-on-year in July, up from 2.9 percent in June.
It will be interesting to see if the annual CPI rate hits the 3.0 percent, because that would be the highest rate since December 2011.
Emerging Markets: Turkish Lira Tumbles Further as Crisis Mounts
Serious concerns have emerged that Turkey’s economic problems could spill over into the Euro area. The euro sank to $1.144, while the dollar advanced alongside Treasuries.
The Stoxx Europe 600 Index, which is a stock index of European stocks that has a fixed number of 600 components representing large, mid and small capitalization companies slid, was dragged down by banks and miners, after a news report said the European Central Bank (ECB) was concerned about the exposure of European lenders to Turkey following the Turkish lira’s dramatic plunge of nearly 12 per cent against the dollar, the Financial Times (FT) reported. The currency fell to an all-time low beyond 6 Turkish lira of 6.0588 TRY per dollar this morning.
The fall came amid increased concerns from the Single Supervisory Mechanism, which is the ECB’s banking watchdog, about the exposure of some of the biggest lenders to Turkey that are chiefly the banks “BBVA, UniCredit and BNP Paribas.”
The ECB’s Single Supervisory Mechanism has also begun over the past couple of months to look more closely at European banks’ ties to Turkey, the FT said, adding that the watchdog doesn’t see the situation as critical yet.
Nevertheless, the very serious risk is that Turkish borrowers may not be hedged against the Turkish lira’s weakness and could start to default on foreign-currency loans, the Financial Times said.
BBVA, UniCredit and BNP Paribas as well as the ECB all declined to comment on the central bank’s concerns.
How ECB Sees Global Growth
In its just released monthly update on economic and monetary developments, the European Central Bank (ECB) states among of course a lot of other things: “The growth momentum of the global economy continued to be steady in the second quarter of 2018, but downside risks related to trade tariffs have remained prominent. In addition, global trade indicators recorded a loss in momentum. Financial conditions have tightened somewhat for emerging market economies, but overall remain supportive in advanced economies.”
The ECB also adds: “Overall, if all the threatened measures were to be implemented, the average U.S. tariff rate would rise to levels not seen in the last 50 years. These developments constitute a serious risk to the outlook for global trade and activity in the short to medium term.”
The ECB concludes: “Monthly trade data decelerated significantly and broadly across countries. Global merchandise imports contracted in April and May 2018, reversing the strong growth recorded in the first quarter, and the global PMI for new export orders fell in the five months to June. Other trade indicators have also weakened, including measures related to global value chains. Overall, these indicators point to a deceleration in trade in the second quarter of 2018.
I think that long-term investors could do well to take note of these statements when planning future investments.
Etienne “Hans” Parisis is a bank economist who has advised investors on financial markets and international investments.
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