Global Economy: That was fun; now comes the slowdown

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U.S. Dollar and Euro notes are seen in this June 22, 2017 illustration photo.

LONDON (Reuters) – For all the talk of world economies rising in sync, there does not seem to be an abundance of optimism about how long it will last.

Tucked away in Reuters latest quarterly economic poll series is a projection that growth rates in nearly all of the world’s largest economies will fall over the next two years. Inflation, meanwhile, will remain benign and in some cases below target.

Both findings would suggest that the current caution of central bankers is warranted. As the European Central Bank’s Mario Draghi said in the past week: “We aren’t there yet.”

The Reuters polls of economists around the world — looking at 46 economies — have been prescient in past years.

If they prove right again, it means the United States, euro zone, Japan, Germany, France and China will all grow more slowly in 2019 than at present. Britain will be growing at this year’s rate — but only after a 2018 Brexit-related hammering.

James Knightley, chief international economist at ING, reckons the projected growth slowdown is a natural maturing of the economic cycle, exacerbated by the gradual tightening of monetary policy measures adopted following the financial crisis.

“Consumers are getting to the point now when debt levels are starting to rise, and with central banks increasingly moving in the direction … of tightening, then that could start to act as a brake on economic activity,” he said.

There will be growth. But it will be fairly humdrum.

Consider the euro zone, currently running at a projected 1.9 percent growth rate. That will drop to 1.5 percent in 2019, according to the economists.

Japan will see its 1.4 percent growth rate today halve to 0.7 percent. The U.S. economy will be down slightly, to 2.1 percent from 2.2 percent, way below the historical trend of above 3 percent.

Did You Feel It?

It may come as a surprise to the average person in many of these economies that the growth cycle is maturing. In many cases it has been a very mild rebound from the Great Recession triggered by the financial crisis a decade ago.

As Stephen King, senior economic adviser at HSBC, noted this month: “Economic records are there to be broken. The U.S. is on the cusp of breaking two simultaneously. Within weeks, the U.S. may have delivered both the longest and the weakest economic upswing in post-war history.”

The new normal — post-crisis and with big emerging economies having matured themselves — may well be for less robust growth, although the Reuters polls project the world economy to grow at around 3.5 percent annually over the next three years.

That is pretty much the average since 1961, according to World Bank statistics, although that of course is dragged down by the Great Recession and the big slump around 1980.

This all goes some way to explaining the extreme caution of central banks in rolling back their unprecedented monetary stimulus. They do not, as the ECB’s Draghi admitted openly this past week, want to commit a policy error.

Their dilemma is that they want to normalise monetary policy as much as possible without killing what growth trillions of dollars of stimulus have helped achieve.

So data releases are even more crucial to policymakers than usual.

The coming week will give them a snapshot of monthly business activity, culminating in the first real look at what happened in the second quarter.

Flash purchasing managers’ indexes for Japan, Germany, France, the euro zone and the United States are released on Monday. All have been in expansion mode. That should continue, but Reuters polls suggest some easing.

Britain announces its preliminary second quarter growth figures on Wednesday. There is a strong consensus that it will tick up to 0.3 percent from 0.2 percent quarter-on-quarter, but slip to 1.7 percent from 2.0 percent year against year.

Arguably the biggest data release comes on Friday with advance U.S. GDP numbers.

An annualised rate — that is, roughly speaking the quarterly number times four — is seen at 2.7 percent, a large jump from the previous 1.4 percent.

Reporting by Jeremy Gaunt; Additional reporting by Jonathan Cable; Editing by Catherine Evans

TOKYO (Reuters) – Japanese peer-to-peer marketplace app operator Mercari has applied to list its shares with the Tokyo Stock Exchange, which could be the biggest initial public offering (IPO) this year, the Nikkei business daily said on Saturday.

The IPO is expected as early as by the end of the year and could raise more than 100 billion yen ($901 million), the report said. Mercari, founded in 2013, is likely to list either on the bourse’s first section or the Mothers market for startups, it added.

Mercari has built a niche in Japan among women in their 20s and 30s who are using it to buy and sell cosmetics, bags used clothes.

Mercari is gaining popularity in the United States as an alternative to Amazon or eBay. If it keeps expanding in the U.S., it would be a rare success story for an Asian startup there.

($1 = 111.1000 yen)

Reporting by Osamu Tsukimori; Editing by Shri Navaratnam

KARACHI, Pakistan (Reuters) – Pakistan’s central bank held its main policy interest rate steady at 5.75 percent on Saturday, the bank’s new governor said, citing low inflation expectations and the gathering pace of economic activity.

Tariq Bajwa, who was appointed earlier this month, predicted consumer inflation to track around 4.5 to 5.5 percent for fiscal year ending in June 2018.

“This projection is explained by lower than anticipated increase in international oil prices,” Bajwa said in a press conference in the city of Karachi.

Pakistan’s economy is heavily sensitive to global oil prices, partly as many of the country’s energy plants use furnace oil to produce electricity, and low oil prices are seen helping maintain macroeconomic stability.

Pakistan has maintained the record-low rate at 5.75 percent since May 2016, and analysts do not foresee major changes any time soon.

Bajwa’s appointment as the governor of the central bank has stoked concerns the central bank’s independence is being eroded. Bajwa has worked closely with Finance Minister Ishaq Dar, who was infuriated by the bank’s decision to allow the rupee to devalue.

Pakistan’s $300 billion economy has made vast strides since a balance of payments crisis forced Islamabad to seek help from the International Monetary Fund (IMF), with growth in 2016/2017 hitting 5.3 percent, its fastest pace in a decade.

Bajwa said the economy remains in an “expansionary phase”.

But the IMF has recently warned that the macro-economic gains made during 2013-2016 have “begun to erode” and pose a risk to economic outlook.

The fund has singled out Pakistan’s ballooning current account deficit as a source of concern. The deficit hit $12.1 billion in 2016/2017, widening 148 percent on the previous year, while foreign exchange reserves have been falling.

But Bajwa said the balance of payments (BoP) issues that have dogged Pakistan in the past will be kept under control.

“For the time being the overall BoP is expected to stay at manageable level in FY18,” Bajwa said.

Reporting by Syed Raza Hassan; writing by Drazen Jorgic; Editing by Shri Navaratnam 

The Toyota logo seen during the 87th International Motor Show at Palexpo in Geneva, Switzerland March 6, 2017.Arnd Wiegmann/Files

TOKYO (Reuters) – Toyota Motor Corp is likely to begin mass production of electric vehicles (EVs) in China as early as 2019, the Asahi daily reported on Saturday.

The model will be based on the C-HR sport utility vehicle and manufactured for Chinese market only, the report said without citing sources.

The pace of production is to be decided after taking into account the regulations and the subsidies, the report said, adding that annual output could start with more than several thousand units.

Toyota spokesman Ryo Sakai said: “We are going to introduce EVs in China with a few years. However, we don’t talk about any future product plans.”

Keen to combat air pollution, China is planning to set goals for electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025, with a staggered system of quotas beginning in 2018.

Reporting by Naomi Tajitsu; Writing by Osamu Tsukimori; Editing by Shri Navaratnam

ST PETERSBURG, Russia (Reuters) – Kuwait’s oil minister Essam al-Marzouq said on Saturday that compliance with oil production cuts by OPEC and non-OPEC countries is good and that deeper cuts are possible.

Asked about the possibility of further cuts to support the price of crude, the minister said: “Everything is open.”

Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and other non-OPEC producers will meet in the Russian city of St Petersburg on Monday to discuss the pact on cuts, which was reached earlier this year.

Marzouq also told reporters that a technical committee of OPEC and non-OPEC countries had heard and was happy with reports from Libya and Nigeria, and that discussions would continue on Monday.

Reporting by Vladimir Soldatkin and Jack Stubbs; Editing by Catherine Evans

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