Opinion  

Keeping up with economics

Alison Steed

Alison Steed

The world is in the grip of a global slowdown, the kind of thing that can worry clients immensely. In fact, skip that, it worries many economists too.

The International Monetary Fund has reduced its forecasts for global growth two times in six months, from 3.7 per cent in October to 3.5 per cent in January, and now to 3.3 per cent in April.

Trade tensions – most notably between the US and China – have precipitated a fall in global confidence, and as yet there has been no breakthrough in the extensive talks between America and China to end the tit-for-tat tariffs. But there is hope for good news in the next month.

US President Donald Trump’s protectionist stance could be understood if it was significantly helping the industries in his own country that he was intending to ‘protect’. Yet the reality appears very different, with agriculture businesses, for example, suffering more than you might have expected.

As it stands, income for farmers in the US is down, while the price of farm machinery has escalated, thanks to increased prices as a result of the tariffs imposed on imported steel and aluminium.

This leaves anyone with a broken combine harvester in a Catch 22 – less income to pay for parts, but no ability to delay harvesting. Mother Nature waits for no one.

China is one of the biggest importers of soybeans produced in the US, but demand has fallen thanks to the tariffs applied in retaliation for Mr Trump’s tariffs on Chinese imports, which of course extend to more than just soybeans, but these are a good example.

The result is that farming bankruptcies in the US have risen to a level not seen in more than a decade. Even when – or if – the trade war between the world’s two largest economies finds a truce, it may be too late for the US farmers.

China was telling its farmers as far back as June last year to start growing soybeans so there was less leverage available on tariffs on these imports. Do you think it is likely China will change that tack anytime soon?

Given the administration is held over a barrel on certain imports and is unlikely to want to repeat the experience, my guess is probably not.

However, the global slowdown is not all about the US and China. Other key economies are struggling too. For example, Germany – one of the key drivers of the European economy – has had some worrying figures coming through in recent weeks.

The IMF cut its forecast for the German economy to 0.8 per cent for this year, down from the 1.6 per cent predicted by the Deutsche Bundesbank as recently as December. The Deutsche Bundesbank president Jens Weidmann told Reuters this was entirely plausible.