IMF warns U.S.-China tariffs may slash global growth in 2020 …As China business outlook drops to lowest level
Current and threatened U.S.-China tariffs could slash global economic output by 0.5 per cent in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.
Meanwhile, China’s business outlook recorded a sharp decline to lowest level on record at the end of May 2019 amid US trade war, May’s Caixin PMI report shows.
IMF Managing Director Christine Lagarde said in a blog and briefing note for G20 Finance Ministers and Central Bank Governors that taxing all trade between the two countries, as threatened by President Donald Trump, would cause some $455 billion in Gross Domestic Product GDP to evaporate — a loss larger than G20 member South Africa’s economy.
“These are self-inflicted wounds that must be avoided,” Lagarde said in an IMF blog post. “How? By removing the recently implemented trade barriers and by avoiding further barriers in whatever form”, Lagarde also said.
In another development, combined expectations among Chinese manufacturing and service-sector companies for the year ahead – particularly smaller, private-sector firms – dropped to the lowest level on record in May as the escalating US-China trade war eroded firms’ confidence, according the latest Caixin Purchasing Managers’ Index published on Wednesday.
The future outlook among manufacturing firms alone weakened to its lowest level since April 2012 when the series began, while service providers remained the least confident in the outlook for the economy and their businesses since July 2018, according to the index.
“Subdued expectations were often linked to the ongoing China-US trade dispute and relatively subdued global demand conditions,” said the section of the report specifically relating to future outlook.
The Caixin Composite Index, which focuses on current conditions in both the manufacturing and service sectors, dropped from 52.7 in April to 51.5 in May, but remained in expansionary territory, signaling further growth in the Chinese economy. The decline in May was much larger than expected by analysts.
The decline in the composite index was due to a weaker service sector, which dropped sharply from 54.5 in April to 52.7 in May, while the manufacturing index remained stable in May at 50.2.
The slowdown in the Caixin PMI Index service sector slightly differs from the small expansion shown by the official PMI data published by National Bureau of Statistics last week, which covers more big and state-owned firms.
“The divergence in the two PMI readings reflects the fact that the two PMI surveys cover slightly different industries and sample size. Both PMI readings suggest that while business activity across the service sector remained expansionary, demand growth has slowed and business confidence has weakened in May,” said Chen Jingyang, an economist with HSBC.
“Although we expect domestic demand growth to remain robust this year on the back of a series of stimulative fiscal and credit policies, the re-escalation of trade tensions between China and the US may have negatively affected business sentiment on the ground. We believe that Beijing is likely to stay on the course of fiscal stimulus and targeted credit easing in order to counter the external headwinds.”
The weaker business conditions also put a dent in employment with the Caixin PMI employment sub-index falling into contraction in May, implying increased pressure in the labour market particularly among small and medium sized companies, which account for a majority of the nation’s employment.
This trend has clearly caused concern at the State Council, which last month formed a new task force comprised of dozens of top officials to work out ways to stabilise employment amid the trade war.
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