This month is shaping up as pivotal for the global economy.
The coming weeks are set to offer clarity on a U.S.-China trade deal, Britain’s fate within the EU and any signs that China’s economy is turning around. At the same time, U.S. President Donald Trump is mulling a report that may lead him to place tariffs on European and Japanese cars, while the Federal Reserve, European Central Bank and Bank of Japan will decide policy.
And the list goes on.
The U.S. is eyeing a summit as soon as mid-March between Trump and his Chinese counterpart, President Xi Jinping, with White House economic adviser Larry Kudlow hailing a potentially “historic deal.” If an agreement is reached, the relief may be short-lived if Britain crashes out of the EU on March 29 without a divorce deal, compounding a broader slowdown across the region.
March is also the month for China’s annual National People’s Congress, when the rubber-stamp parliament will sign off on the government’s economic plan for the year. The centrepiece announcement will be the annual growth target. Some economists expect China to set a lower growth target of either about 6 per cent, or from 6 to 6.5 per cent — down from around 6.5 per cent for the past two years.
Key Chinese data will also be released over coming weeks, indicating whether or not the world’s second-largest economy is responding to policy easing after months of stimulus.
“March data will need to start showing China’s economy is recovering,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA in Hong Kong. “If not, we should start worrying.”
March data will need to start showing China’s economy is recovering. If not, we should start worrying.
Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA
How events play out will dictate investor sentiment after a rocky start to the year. The International Monetary Fund in January cut its forecast for the world economy, predicting it will grow at the weakest pace in three years in 2019.
Risks were evident in fourth-quarter data showing the U.S. economy was steadier than thought, growing by 2.9 per cent annualized, though a buildup of inventories means the outlook is far from certain, according to Bloomberg Economics.
“The economy appears to have dodged a bullet at year-end — but the coast is not clear,” Bloomberg U.S. economists led by Carl Riccadonna wrote in a note.
While Goldman Sachs Group Inc. Chief Economist Jan Hatzius believes the global economy may have already bottomed out, the risk to Goldman’s global GDP forecast of 3.5 per cent for 2019 remains to the downside.
“The coming weeks may bring more clarity over Brexit, U.S. tariff threats to EU auto producers and whether Beijing is succeeding in re-stimulating China’s growth,” said Sarah Hewin, chief economist for Europe and Americas at Standard Chartered Bank. “A benign outcome in each case could improve the outlook for exporters and broader business sentiment.”