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August 29, 2018

Global Economy: Trade war clouds darken

  • The United States (US) economy posted a solid 4.1% on-quarter growth in the second quarter of 2018, driven by private and government spending
  • In its August meeting, the Bank of England raised its benchmark policy rate by 50 basis points (bps) to 0.75%, in keeping with market expectation
  • Brent crude oil prices cooled 20 bps on-month in July, averaging $74.4 per barrel, following a deal to increase output

Global growth parameters indicate the much-vaunted synchronized economic revival continues. However, the continuing protectionism and the tariff spat between the US and China are raising risks. The global economy may yet feel the bite from the trade war.


In the July update of its World Economic Outlook, the International Monetary Fund (IMF) continued to peg global growth at 3.9% in 2018 and 2019, while flagging the rising downside risks. While it expects growth to be solid in the US, the IMF has lowered its growth projections for the euro zone, the United Kingdom (UK), and Japan. Growth in China is expected to moderate, as regulatory tightening of the financial sector takes hold and external demand softens. Overall, the IMF expects growth in emerging market economies to be more uneven, stronger in net oil-exporting countries and slower in net oil-importing economies. The emerging market economies are expected to face pressure from rising oil prices, higher yields in the US, the strengthening US dollar, and escalating trade tensions between the US and its major trading partners.