Chief economist update: Synchronised forecasts for a synchronised slowdown

"Just when you thought it was safe to go back in the water..."
- Jaws

The history of the US-China trade negotiations has followed a pattern ever since it began in 2018 - rhetoric from both sides building hopes for a deal only to be followed by escalating trade protectionism and greater threats (and outright imposition) of more to follow.

This pattern continues to this day - right on the eve of another Sino-Yankee meeting slated for October 10 - when optimism for a handshake are, instead, followed by an escalation of tensions.

No need to reinvent the wheel, here's Factset's summary:

"Bloomberg reported the US will slap visa bans on officials linked to Xinjiang human rights abuses. SCMP reported China toning down expectations ahead of Thursday's high-level trade talks in Washington. While Vice-Premier Liu to lead delegation, he will not carry "special envoy" title. Delegaton also cut short stay in Washington by one night," it said.

"[US] Commerce Department placed eight Chinese tech firms to entity list, barring purchases of parts and components from firms without US government approval (Bloomberg, Reuters). Cited alleged human rights abuses, use of high-tech surveillance against China's Muslim minority."

You, I and Irene could guess, presume and assume but at the end of the day, this is Trump's "Art of the Deal" tactic to get Beijing to kowtow to his demands.

No way, toupee! Having worked its way up from being one of the sick men of Asia to the second biggest economy in the world, there's no way China would be seen as giving in to Trump's "bullying", not because of economic imperatives but more because of that one inherent cultural characteristic among Asians - "saving face".

But I digress. The general economic and business uncertainty spawned by this clash of the titans is taking the whole world down with them.

So much so that latest headlines quote new IMF managing director Kristalina Georgieva warning of a synchronised slowdown. In her inaugural speech, Georgieva declared: "Everyone loses in a trade war. For the global economy, the cumulative effect of trade conflicts could mean a loss of around $US700 billion ($1 trillion) by 2020, or about 0.8 per cent of GDP. As a reference, this is approximately the size of Switzerland's entire economy."

"This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade.

"This coincides with the World Bank's warning that, "If the trade conflict worsens and causes a slump in investor confidence, the effects on global growth and poverty could be significant - more than 30 million people could be pushed into poverty and global income could fall by as much as $1.4 trillion."

But both these reports have already been telegraphed by the OECD and the WTO.

In its 'Interim Economic Outlook' report published on September 19, the OECD lowered its world economic growth forecast from 3.6% in 2018 to 2.9% (down from 3.2% forecast in May 2019) this year and 3.0% (down from 3.4%) in 2020.

For its part, the WTO projects world merchandise trade to slow from 3.0% in 2018 to 1.2% this year, resulting in a deceleration in GDP growth (at market exchange rates) to 2.3% from 2.8% last year.

Surprise, surprise but all four international institutions recommend a "coordinated fiscal response" given that monetary policy has seemingly become impotent.

However, hopes for a coordinated response - monetary or fiscal or whatever - won't be happening while Trump is hell-bent on "Making America Great Again" by beggaring all its neighbours.

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