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January 29, 2019

Global Economy: Divergent tackles

  • The United States (US) Federal Reserve raised its policy rate by 25 basis points (bps) in December, but cut projection for 2019 rate hikes to two from three earlier
  • China's official manufacturing Purchasing Managers' Index (PMI) contracted in December for the first time since July 2016
  • Brent crude oil prices fell to a 15-month low in December on concerns of oversupply and global economic slowdown

The global economy started on a strong note in 2018. However, as the year progressed, themomentum slackened to signal a slowdown. Protectionist sentiment, the trade war betweenthe US and China, volatile crude prices, geopolitical concerns, and financial pressures allplayed their part. The red flags are out again as 2019 dawns.


Central banks of several advanced economies have taken note of these concerns. InDecember, the monetary policy committees of key advanced economies met and signaled adivergent global monetary policy. In the US, the Fed cut the projection for its 2019 rate hikes.Moreover, a rotation of the Federal Open Market Committee’s (FOMC) voting members in2019 has tilted the balance towards a dovish FOMC. In Europe, the European Central Bank(ECB) wrapped up its asset purchase programme, although continuing to reinvest in maturingsecurities. The ECB is expected to start hiking its benchmark policy rate in the second half of2019, ending the negative interest rate era that followed the financial crisis. Separately, theBank of England kept its policy rate on hold while the Bank of Japan (BoJ) continued with itsqualitative and quantitative easing policy.