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August 29, 2019

Global Economy: Stimulus redux

  • The International Monetary Fund (IMF) revised down its global growth forecast on rising global uncertainty
  • The United States (US) Fed ended its rate hike cycle by undertaking a preemptive rate cut of 25 basis points (bps) in July in lieu of an anticipated slowdown going forward
  • The tariff war between the United States and China escalated with President Trump threatening to impose new tariffs on $300 billion worth of Chinese imports from September 2019

It is yet another fissure in the fragile world economy. Even as global growth is contracting, US President Donald Trump has threatened to impose another round of tariffs on Chinese imports, triggering a risk-off scenario. The trade war between the US and China is exerting downward pressure on global growth by hurting markets, crippling trade and increasing uncertainty – that bugbear of financial and economic decision-making. Q2 2019 gross domestic product (GDP) growth came in weaker than that in Q1 for most economies, led by a slowdown in global trade and investment. In July, the IMF cut the forecast for global growth. 


In an effort to counter an anticipated slowdown, the monetary policy in advanced economies has turned dovish. The US Fed cut its policy rate by 25 basis points (bps), marking the first rate cut since December 2008. Moreover, there is growing anticipation of a quantitative easing program plus a deposit rate cut by the European Central Bank (ECB). 


The jury is still out on whether the accommodative monetary policy will succeed in lifting the world economy out of the current slowdown.