With the global economy back on a more stable footing, the focus of policy-makers is shifting towards creating a more inclusive and sustainable economy. Indeed, for the future of financial markets to be bright, leaders must embrace structural reforms including social and environmental policies, placing sustainability at the core.
This long-term perspective is enabled by a more upbeat short-term outlook – global economic growth has improved dramatically in recent months. First, the completion of phase one of the United States-China trade deal has boosted confidence. Second, global central banks are pursuing accommodative policy in a synchronized way. Third, there has been a bottoming out in the trade and industrial outlook.
“Most of the major economies look a lot better today than they did just three months ago,” said Kristalina Georgieva, Managing Director of the International Monetary Fund. Nevertheless, the IMF has reduced its forecast of global GDP growth to an anaemic 3.3% (with central bank stimulus underwriting around 0.5% of that growth).
Clouding the outlook are ongoing trade frictions, most notably between the US and China. “Trade truce is not the same as trade peace,” she stressed.
Framing trade in terms of war and peace is not helpful, countered Steven Mnuchin, the US Treasury Secretary. “Instead we are focused on free, fair and balanced trade,” he said. Whether you like or dislike tariffs, we wouldn’t have these trade deals without them, he added. Looking ahead, he said the Trump administration is focused on implementing phase one and has not yet set any deadline for phase two of the trade negotiations. The US has also recently commenced talks with the United Kingdom on a bilateral trade agreement.
Sajid Javid, the UK Chancellor of the Exchequer, said the newly elected UK government will be one of the most pro-growth and pro-business ever. “We are passionate believers in free trade,” he said, adding that trade is a key driver of growth and job creation, and lowered consumer prices.
Axel A. Weber, Chairman of the Board of Directors of UBS, was more circumspect. “Phase one of the trade deal was a welcome break – but it was not a complete breakthrough,” he said. An air pocket in growth in the first half of the year can’t be ruled out as a result of the Fed on standby and delayed effects of tariffs. To offset any coming temporary weakness, he emphasized the need for a strong fiscal response rather than relying on monetary policy, which he said has “maxed out”.
“There are several countries in Europe that have room to manoeuvre on the fiscal front,” he said, including additional spending and tax cuts. Over the longer term, he stressed the need to keep sight of the tremendous benefits of free trade, which have underpinned decades of growing prosperity and global economic integration.