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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

IMF warns on trade wars; China's economic growth slows – as it happened

People crossing a road in front of a billboard on the wall of a construction site in Beijing’s central business district.
People crossing a road in front of a billboard on the wall of a construction site in Beijing’s central business district. Photograph: Greg Baker/AFP/Getty Images

And finally, London’s stock market closed lower tonight.

The FTSE 100 lost 61 points to end at 7,600, a fall of 0.8%. Miners and oil companies were among the fallers, following the slowdown in Chinese growth and persistent worries about trade spats.

Fiona Cincotta of City Index explains:

The FTSE fell heavily on Monday, dipping below 7600, as commodity stocks and a stronger pound weighed on the index. With the Chinese economy expanding at a slightly slower pace in Q2, metal prices tumbled, causing mining stocks to trace the price lower, which oil majors slipped as oil tumble 3%.

Given the heavy weighting of resource stocks on the FTSE, the blue-chip index lagged significantly behind its European peers.

Germany’s DAX had a better day, up 0.16% while France’s CAC dipped by 0.3% as the Paris exchange enjoyed a quiet session after the World Cup final.

Goodnight! GW

Updated

Here’s our economics correspondent Richard Partington on the IMF’s new economic forecasts:

Rising trade tensions between the United States and the rest of the world could cost the global economy $430bn (£324bn), with America “especially vulnerable” to an escalating tariff war, the International Monetary Fund has warned.

Delivering a sharp rebuke for Donald Trump, the Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5% by 2020, or about $430bn in lost GDP worldwide.

Although all economies would suffer from further escalation, the US would find itself “as the focus of global retaliation” with a relatively higher share of its exports taxed in global markets. “It is therefore especially vulnerable,” the fund said.

Just in: CNBC are reporting that Goldman Sachs will name their new CEO tomorrow morning.

David Solomon, currently president of Goldman Sachs, will be promoted to succeed Lloyd Blankfein, they say.

That wouldn’t be a surprise; Solomon has been in poll position for the top job since rival Harvey Schwartz stepped down four months ago.

Solomon is known as a food fanatic and music fan (spinning vinyl as “DJ D-Sol”)....

The IMF expects advanced economies to slow next year, while emerging markets will power on.

But these forecasts could turn to dust if the tit-for-tar trade dispute turns into an damaging trade war.

IMF: Financial markets seem complacent

The IMF’s Maurice “Maury” Obstfeld is speaking now, warning that the global recovery has plateaued and become less balanced.

Obstfeld says:

We continue to project global growth rates of just about 3.9 percent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term.

He points out that growth has slowed recently in the eurozone, Japan and the UK (which is why the IMF has trimmed their growth forecasts).

Obstfeld says Europe looks less stable than three months ago (before Italy’s populist government was sworn in, and Germany’s coalition was split over migration). He explains:

Political uncertainty has risen in Europe, where the European Union faces fundamental political challenges regarding migration policy, fiscal governance, norms concerning the rule of law, and the euro area institutional architecture. The terms of Brexit remain unsettled despite months of negotiation.

Obstfeld also warns that financial markets seem “broadly complacent” about the risks of a trade war, and the geopolitical tensions rising across the world.

IMF sounds alarm on trade wars

Newsflash: The International Monetary Fund has warned that hundreds of billions of dollars of growth will be wiped out, if a full-scale trade war breaks out.

The IMF estimates that the global economy will be 0.5% smaller by 2020 if the various tariffs threatened by the US, China, Europe, Mexico, Japan and Canada are all implemented.

The warning comes in the IMF’s latest economic outlooks, which also cuts Europe’s growth predictions this year.

Maury Obstfeld, IMF Economic Counsellor, says:

The risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth.

Global current account imbalances are set to widen owing to the United States’ relatively high demand growth, possibly exacerbating frictions. The United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others.

Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020. As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.

The IMF has lowered its forecast for eurozone growth this year to 2.2%, from 2.4% back in April.

It has also cut its forecast for UK growth in 2018 to just 1.4%, from 1.6%.

But it still expects the global economy to grow by 3.9% this year, and in 2019.

A crispy bacon doughnut.

It’s pretty obvious that trade wars can make imports more expensive, as tariffs are effectively paid by consumers.

But they can also make domestic goods cheaper, if suppliers are left with a glut of products which they can no longer sell competively overseas.

And this is already happening in America, where pork prices are falling on fears that China will stop importing as many US hams.

Bloomberg reports that hog futures are weak this year. And American meat lovers are already taking advantage, and tucking into some culinary treats.....

On Saturday in Dallas, as many as 30 people on a local bacon-focused food tour were set to traverse the city chomping down on bacon donuts, bacon brown sugar ice cream, bacon jam and candied bacon. While retail bacon prices are down in the past 12 months, they’re still up from six years ago, so any relief from higher costs will be welcome news to the pork enthusiasts.

“It’s almost like a bonding experience,” said Jeanine Stevens, the owner of Dallas Bites! Tours, which takes participants to little known restaurants and other eateries. “Bacon is a kind of food that people just feel a little bit lighthearted about. It’s a fun food.”

Vincent-Freědeěric Mivelaz of Switzerland’s SwissBank is concerned by today’s Chinese growth figures.

Mivelaz points out that there are signs of weakness, with fixed asset investment dropping from 6.1% to 6% per year in June, industrial production growth down to 6% from 6.8%, and retail sales growth below their recent average.

He adds:

Money supply is tightening, due to caution of financiers and debt risk, so the Chinese economy is expected to slow down industrial activity and private consumption. Trade tariffs will be a key factor in coming months.

Updated

Full story: China turns to WTO in trade spat

Here’s our Beijing correspondent, Lily Kuo, on China’s retaliation against America’s tariffs:

China has filed a complaint against the US at the World Trade Organisation over Donald Trump’s threats to place tariffs on an additional $200bn worth of Chinese goods.

The one-sentence announcement on Monday, from China’s ministry of commerce, comes less than a week after the US president called for a second round of tariffs on China, in retaliation for Chinese tariffs placed on American goods.

On 6 July, the US imposed 25% tariffs on $34bn in Chinese goods, prompting Beijing to hit back with levies on the same amount of US exports to China. In response, the White House last week released a wide-ranging list of $200bn in Chinese goods, from tobacco to dog and cat food, to target with 10% tariffs. Beijing said it would “fight back as usual” and would file a complaint with the WTO.

The new round of tariffs would not come into effect until September, making China’s response uncharacteristically quick. Up to now Beijing has waited for the US to “fire the first shot” in the escalating trade war...

More here:

US retail sales rise again

FILE PHOTO: A US flag.

Newsflash: US retail sales grew steadily last month, indicating that America’s economy is growing steadily despite tariff worries.

Retail sales jumped by 0.5% in June, the Commerce Department reports. That’s the fifth monthly rise in a row.

May’s figures have also been revised higher, to show a 1.3% increase - up from 0.8% previously.

However, ‘core retail sales’ (stripping out cars, gasoline, food and building materials) were flat in June.

Here’s some instant reaction:

Here’s a handy chart, showing how the availability of credit in China has recently been reined in, after a long period of loose monetary policy after the financial crisis.

London’s stock market has fallen into the red, as City traders fret about the risk of a tradw war.

The FTSE 100 has shed 88 points, or over 1%, to 7573. After a slow start, equities took a hit as the oil price fell, hitting shares in energy producers and miners.

Brent crude is now down almost 2% at $73.94 per barrel, following the news that China’s growth rate has slowed.

Connor Campbell of SpreadEx says:

The FTSE’s initially meagre losses gathered pace as Monday went on, the index dragged lower by its commodity stocks.

With Brent Crude slipping 1.1%, and copper down 0.7%, both suffering in light of China’s Q2 slowdown, the FTSE’s hefty oil and mining ended up in the red, dragging the UK index lower in the process.

European stock markets at 12.45pm today
European stock markets at 12.45pm today Photograph: Sky News

Larry Fink: Trade war will hurt America

Getting back to trade, the boss of asset management giant BlackRock has warned that Donald Trump’s trade dispute with China will hurt growth.

Larry Fink told Bloomberg TV that America’s economy would suffer if the White House imposes tariffs on an extra $200bn of Chinese imports (as it threatened last week).

Fink said that US economic growth has been strong in 2018, but it will weaken in 2019 if America escalates the trade war with China.

He predicted that:

GDP will slow down dramatically.....we’ll have even more uncertainty about the state of the world.

Fink added that shares would tumble if a full-blown trade war broke out, adding that “markets will speak louder than any single voice”.

Defence secretary Gavin Williamson says the UK’s new concept fighter jet will help the country ““fly higher, further and faster than ever before”.

Williamson explains that the Tempest could be operated by a pilot, or be flown unmanned (using a virtual cockpit, I think).

He hopes that the plane could be operational by 2035, and adds that Britain is open to partnering with other countries on its future fighter programme (as happened with the Eurofighter Typhoon, of course).

Several major engineering and defence firms are already on board, including Rolls-Royce and BAE Systems.

UK unveils Tempest concept fighter jet

Over in Farnborough, Britain’s defence secretary has just unveiled a new concept fighter jet to protect the UK in the coming years.

It’s called “Tempest”, and dubbed a next-generation fighter jet that could eventually replace the Eurofighter.

Updated

Eurozone trade surplus falls (but not to America!)

Just in: the Eurozone suffered a drop in exports in May, narrowing its trade surplus with the rest of the world.

However, the euro area’s trade surplus with America has grown - which will not please Donald Trump.

Eurostat reports that the eurozone exported €189.6bn of goods to the rest of the world in May 2018, a drop of 0.8% compared with May 2017.

Imports from the rest of the world rose by 0.7% to €173.1bn, (from €171.9bn in May 2017).

This means the euro area’s goods surplus has shrank to €16.5bn in May, down from €19.3bn a year earlier.

The figures also show that the European Union exported 2.1% more goods to America in the first five months of 2018, but imported 3.1% less.

As a result, the EU’s trade surplus with the US has swelled to £54.8bn, up from £48.1bn a year ago [more details here].

Eurozone trade data
Eurozone trade data Photograph: Eurostat

Trump has other things on his mind today, of course, but this data might reinforce his belief that the EU treats America very badly on trade.

Updated

Here’s Associated Press’s take:

China announced it filed a World Trade Organization challenge on Monday to U.S. President Donald Trump’s proposal for a tariff hike on $200bn of Chinese goods, reacting swiftly amid deepening concern about the economic impact of their spiraling technology dispute.

The one-sentence Commerce Ministry statement gave no legal grounds for the challenge or other details. It is an unusually rapid move for a trade case, coming less than one week after the U.S. Trade Representative [USTR] announced the tariff plan, which wouldn’t take effect until at least September.

The USTR said last week that it proposed the levy in response to Beijing’s decision to retaliate for U.S. tariff hikes over complaints China is hurting American companies by stealing or pressuring foreign enterprises to hand over technology....

Updated

This is a swift move by China.

By appealing to the WTO, Beijing is signalling that it won’t accept America’s proposal to slap 10% tariffs on a wide range of imports - from meat and vegetables to chemicals and consumer products (plus plenty of unusual items).

However, China still hasn’t revealed how it will retaliate against America’s plan to make $200bn of its imports less competitive.

That may be because Beijing can’t announce reciprocal tariffs, as it doesn’t import enough stuff from the US....

China files WTO complaint over US tariffs

Newsflash: China has filed a complaint with the World Trade Organisation over America’s latest threat to impose levies on Chinese imports.

According to Associated Press, Beijing is protesting about the plan to hit $200bn of Chinese goods with a new 10% tariff (probably starting in September).

Tom Rafferty of the Economist Intelligence Unit believes China’s economy has held up well despite the trade spat with the US.

However, he also expects growth to slow in the next few months.

Rafferty says:

“The data shows that global trade headwinds have yet to grip China’s economy. Despite the heated global rhetoric around trade and associated financial market volatility, China’s export sector performed well in the second quarter of the year and will probably prove quite resilient under the limited tariff actions we anticipate from the US and China.

We are more concerned about slowing domestic demand within China’s economy, with investment persistently weak and consumption also having slowed, and these are much more important drivers of growth than exports.

The fall in industrial output growth in June was notable in this regard. The authorities have begun to loosen policy settings, but will be reluctant to go too far given their desire to curb financial risks. As such, we expect growth to slow in the second half of the year and more markedly in 2019.”

ING economist Iris Pang has spotted an important detail in today’s Chinese growth figure.

China’s robot production only grew by 7.2% year-on-year in June, compared to 23% for 2018 as a whole.

That signals that factory bosses are worried about the future, and refusing to invest in new equipment right now.

A bull made with Lego blocks at the Frankfurt stock exchange.

European stock markets are subdued this morning, with the FTSE 100 dipping by 18 points (0.2%) in early trading.

Germany’s DAX has made a better start, up 0.35%, while the French CAC is flat (maybe Parisian traders are recovering from the World Cup).

Neil Wilson of Markets.com says investors are awaiting developments in Helsinki, and not too alarmed by the Chinese growth figures....

Looking ahead, the Trump-Putin summit could have an impact on risk assets as the US president continues to show a willingness to disrupt the established world order. After calling the EU a ‘foe’ on trade, European leaders in particular will be wary about just how much Trump cosies up to Putin, which may dampen risk appetite. But at the very least it deflects attention away from Chinese trade wars for the time being.

Asian stocks fell as overnight China GDP data disappointed a touch but we can look through the noise here. There is little change from the last several quarters with growth holding just below the 7% level. The chatter is that trade war concerns are weighing on business confidence but this sounds more like a lot of noise.

Updated

Tusk: Let’s not start trade wars

Chinese Premier Li Keqiang (centre), European Council President Donald Tusk (left) and European Commission President Jean-Claude Juncker (right) at a press conference in the Great Hall of the People in Beijing today.
Chinese Premier Li Keqiang (centre), European Council President Donald Tusk (left) and European Commission President Jean-Claude Juncker (right) at a press conference in the Great Hall of the People in Beijing today. Photograph: How Hwee Young/EPA

European Council President Donald Tusk has urged the world’s major powers, including China, to help prevent a global trade war that would hurt the global economy.

Speaking at the 20th EU-China summit, Tusk called for policymakers to strengthen and reform the ‘rules-based’ international setup, rather than unravelling it.

He also gave a pointed nudge towards the US-Russia summit which is taking place in Helsinki later today, saying:

“We are all aware of the fact that the architecture of the world is changing before our very eyes. And it is our common responsibility to make it a change for the better.

Let us remember, here in Beijing, and over there, in Helsinki, that the world we were building for decades, sometimes through disputes, has brought about peace for Europe, the development of China, and the end of the Cold War between the East and the West.

It is a common duty of Europe and China, America and Russia, not to destroy this order, but to improve it. Not to start trade wars, which turned into hot conflicts so often in our history, but to bravely and responsibly reform the rules-based international order.”

Tusk has also tweeted that he hopes his message reaches the leaders of the US and Russia in Finland.

Updated

Iris Pang, Greater China Economist at ING in Hong Kong, argues that Chinese policymakers need to do more to boost growth.

She says:

“They need to slow financial deleveraging slightly and to turn their focus more on growth-supportive measures, for example increasing liquidity through (bank reserve requirement) cuts.

“If the situation gets worse a lot faster than what we expect I do think Chinese authorities need to beef up supportive measures, both fiscal and monetary.”

Bloomberg: Chinese GDP is a 'worrying omen'

Although China’s growth rate only dipped slightly, it’s a worrying sign for the health of the global economy, argues Bloomberg News.

They fear that the ‘spillover effects’ of China’s slowdown could hurt other countries, arguing:

Confirmation that China’s economy is slowing amid an escalating trade war is a worrying omen for global growth.

Data released since Friday has affirmed what’s been expected for some time: That an ongoing campaign to curtail credit is putting the brakes on the world’s second-largest economy. Given that China generates as much as a third of global growth, that’s adding to signs that the best world expansion in years is plateauing.

The International Monetary Fund, which has repeatedly warned that the trade spat between the U.S. and China will reverberate globally, is scheduled to release fresh growth forecasts later Monday.

The Chinese economy grew at an expected 6.7 percent in the second quarter, its slowest pace since 2016, while key readings on investment growth and industrial output slowed in June. Retail sales held up.

Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong, has warned clients that the trade row between Beijing and Washington could soon cause serious harm to economic growth.

“If the US and China do not resume talks in the next two months or so, the conflict will escalate further, with major economic implications for themselves and the global economy,”

Investment manager Mario Cavaggioni tweets:

Back in April, Beijing told state-owned banks to stop lending so much money to local authorities to fund building projects.

That clampdown is now hitting growth, argues Haibin Zhu, chief China economist at JPMorgan in Hong Kong.

“A main reason for the slowdown is that infrastructure investment began to slow down in the first quarter as the government was trying to control local government debt.

“The good news is that there is space to provide more fiscal support through tax cuts and higher infrastructure investment. We expect they will move along these lines.”

Mao Shengyong, spokesperson for China’s National Bureau of Statistics, has told reporters that the Chinese economy made a “good start” to 2018 - despite growth slowing a little in the April-June quarter.

Reuters has more details:

Noting increasing external uncertainties and the fact that China is still going through a critical stage in structural adjustment, Mao said the country would stick to the supply-side structural reform and coordinate efforts to ensure stable and sound economic performance.

The agenda: Chinese growth figures

A Chinese flag .

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

China’s growth rate has dipped to its lowest rate since 2016, in a sign that the trade dispute with America maybe hitting its economy.

Chinese GDP rose at an annual rate of 6.7% in the second quarter of 2018, partly due to slower-than-expected growth in factory output.

That’s a slight deterioration on the first three months of this year, when the economy expanded by an annual rate of 6.8%.

Although this is above Beijing’s goal of growth “above 6.5”, it will stoke concerns that the tariffs imposed by America this year are hurting. It could also show that the campaign to rein in shadow banking and risky lending is also restraining growth.

Official government figures also show that industrial output only grew by 6.7% year-on-year in June, down from 6.9%. However, retail sales jumped by 9% year-on-year, up from 8.5%.

China’s National Bureau of Statistics warned that there are “increased uncertainties” in the global economy (no prizes for who they’re thinking of...). It also argued that the Chinese economy is still on a “steady and improving trend”, despite the shadow of a trade war with America.

Asian stock markets dipped following the data, with the Shanghai Composite down around 0.8%. European markets are also set for an underwhelming start to the new week.


I’ll pull together some reaction now.

Also coming up today

The International Monetary Fund is publishing its latest assessment of the global economy this afternoon. We also get new eurozone trade stats and US retail sales figures.

Investors will be watching Helsinki, as Donald Trump and Vladimir Putin hold a summit. The meeting comes just days after 12 Russian military intelligence officials were indicted for allegedly trying to hack the Democratic party’s emails and computer networks during the 2016 election campaign.

Trump has given European leaders fresh cause for alarm, declaring that the EU is a “foe” given how it trades with America.

Plus, there’s always Brexit. Overnight, Conservative MP and former minister Justine Greening has called for a second referendum, creating yet another headache for Theresa May ahead of more crunch votes in parliament this week.

Brexit will also be high on the agenda at Farnborough, as the aerospace industry gather for the International Airshow.

The agenda

  • 10am BST: Eurozone trade balance
  • 1.30pm BST: US retail sales
  • 3pm BST: International Monetary Fund releases its latest World Economic Outlook

Updated

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