Economics
Chief economist update: Prepare for lift-off

It may have "started with a kiss" for British soul band "Hot Chocolate", but several years from now, when we look back at what I foresee as the re-starting of the engines of global growth, we'll all know that this started with the Powell pause.

Yes Virginia, I've turned into Dr. Doom's (Nouriel Roubini's) mini-me since the second half of 2018.

How could anyone not be? Certainly, tariff man Trump's war on trade has compounded the world's growth challenges but still, it's the drain on global liquidity that has the world reversing the strong growth momentum of 2017 to early 2018 into the slowdown we are witnessing now.

Recall what we were all contemplating at the start of last year? Four Fed rate hikes of 25 bps each in 2018 (that's done) and forward guidance for another three this year; policy exit speculations from the European Central Bank (ECB) and the Bank of Japan (BOJ); and, hawkish policy leanings from the Bank of England ("an ongoing tightening of monetary policy would be appropriate"); Bank of Canada ("interest rates to its neutral range 2.5% -3.5%); and the Reserve Bank of Australia ("the next move in interest rate is likely to be up rather than down"). And that's not all of them.

The US dollar's appreciation - a consequence to the Fed's rate hikes and expectations for more - sent emerging currencies down and raised both inflation and inflation expectations in emerging markets, necessitating their respective central banks to lift borrowing costs that, in turn, provided extra impetus to their already slowing economic growth.

Thanks to its semi-peg (dirty float?) versus the US dollar, China's currency didn't suffer the similar magnitude of depreciation as its emerging market peers. But no thanks. Being a crosshair of Trump's trade rifle, China's economy slowed and its target GDP growth recently adjusted from 6.5% to a band of 6.0% - 6.5%.

That's where we are so far in the world in 2019 and it'll be so perfectly rational to extrapolate growth in the global economy - the OECD has just downgraded its global growth forecasts to 3.3% this year (from 3.5% predicted in November 2018) and 3.4% in 2020 (from 3.5%) - if everything remains the same.

But they don't. Fiscal and monetary authorities react. The experience of the GFC just a decade before is a perfect example.

The same thing is happening now as I write. The Fed's on pause -- New York Federal Reserve president John Williams only recently declared that the fed funds rate is now at neutral - the ECB has just announced LTRO III; the BOJ governor saying "we'll consider easing policy"; the BOE adding "gradual pace and to a limited extent" to its forward guidance that "an ongoing tightening of monetary policy over the forecast period ...  would be appropriate" etcetera.

The BOC has also changed its tune to "continues to warrant a policy interest rate that is below its neutral range"; and the RBA? Yes, it's now saying that "the next-move-is-up scenarios were more likely than the next-move-is-down scenarios" ... with financial market expectations for not only one, but two interest rate cuts gaining advocates as the year progresses.

And then, there's China which is easing both monetary and fiscal policies.

Just as 2018's optimism over global growth brought speculations of tighter policies, easier (or speculations of) policies this year will revive global growth.

Read more: Bank of CanadaBank of EnglandBank of JapanEuropean Central BankJohn WilliamsNew York Federal ReserveNouriel RoubiniReserve Bank of Australia
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