Overseas Headlines- April 4, 2019

United States:

For U.S. Business, Trump’s China Deal Can’t Come Soon Enough

Pretty much everyone from farmers in the American grain belt to importers of technology products wants an end to President Donald Trump’s trade war with China. For Tore Torvund, who runs a silicon materials manufacturer, however, Trump striking a deal with Beijing has become an existential question. He needs a victory now. For months Torvund and the 150 or so workers who operate REC Silicon ASA’s sprawling tangle of pipes, valves and gravity-fed reactors inside a towering plant have been running at just 25 percent capacity, keeping an eager eye on bilateral trade negotiations that could salvage or doom their operation. In that sense the plant in Moses Lake, a farming town in central Washington, is emblematic of how American businesses are on tenterhooks waiting for Trump to strike what may turn out to be the most economically consequential deal of his presidency. If that victory doesn’t come in the next few weeks, Torvund has told his board he’ll be forced to shut down the plant entirely by May. Competition for the few customers outside China remaining has been intense and led to too many consecutive losses. “We are more or less without customers,’’ he said. To ensure survival of the plant, which on average pays workers $90,000 annually, Torvund needs Trump to re-open a Chinese market that for years has been almost entirely closed to American exports of polysilicon, the raw material used to make solar cells. But the story of REC Silicon is one of both the unintended consequences of trade battles and how China has become a dominant force in sectors like the solar industry. After the U.S. imposed anti-dumping duties on Chinese solar cells and panels in 2012, Beijing retaliated with a 57 percent tariff on U.S. polysilicon. China is the world’s largest market for the material and has ramped up its own production to the point of controlling about two-thirds of global production.



Italy Is Said to Cut Economic Growth Forecast to Just 0.1%

The Italian Treasury is set to slash its growth forecast for this year and raise its projected budget deficit, according to two senior officials with knowledge of the draft outlook. The economy will expand by just 0.1 percent this year, according to the draft, which is due for cabinet approval by April 10, the officials said. The government’s previous forecast was for a 1 percent expansion and the new prediction is in line with Bloomberg’s latest survey of economists. Italian stocks and the euro fell after the report of the forecast downgrade. The FTSE MIB index dropped to a session low on the news, and was down 0.3 percent as of 1:05 p.m. Rome time. Such dire figures highlight the uphill struggle the government faces to fix the economy. The country, which fell into a recession late last year, is burdened with a debt ratio of more than 130 percent of GDP and stagnation will make it even harder to take control of the fiscal situation. The budget shortfall is projected to be 2.3 percent or 2.4 percent of GDP, compared with the previous forecast of 2.04 percent agreed on with the European Commission last year. The government is aiming to achieve growth of 0.3 percent or 0.4 percent with a series of measures to boost output included in the so-called Growth Decree, which goes to a separate cabinet meeting Thursday. The forecasts could still be revised before they are approved by the cabinet next week, the officials said, asking not to be named discussing confidential analysis. A wider deficit could revive some tensions with the European Commission after blunt exchanges in 2018. The government isn’t keen on measures that would dampen growth, and Finance Minister Giovanni Tria has said that restrictive fiscal measures would be “absurd.”



Bank Indonesia Chief Says Rate Is on Hold Amid Global Risks

Bank Indonesia is keeping interest rates unchanged for the moment given global uncertainties, and will turn to macroprudential policies to support economic growth, Governor Perry Warjiyo said. “Our monetary policy is always forward-looking and ahead of the curve,” Warjiyo said in an interview with Bloomberg Television’s Haslinda Amin in Chiang Rai in Thailand. “For the time being, we need to look at the external stability and that’s why were still holding up our interest rate.” Bank Indonesia has kept its key rate unchanged following 175 basis points of hikes between May and November last year to counter an emerging market sell-off. The nation’s currency and bonds have rallied since then, and with the U.S. Federal Reserve putting rate hikes on hold, economists from Goldman Sachs Group Inc., Morgan Stanley and elsewhere predict Indonesia will cut rates in coming months. Warjiyo said while global growth risks are rising, U.S. developments remain the main factor driving sentiment in emerging markets. He said external conditions are improving, and was “positive and quite pleased” with the steps Bank Indonesia took last year to stabilize the currency. That allows the central bank to shift its focus to supporting economic growth. It eased macroprudential norms last month to allow banks to boost lending to businesses to ease liquidity constraints ahead of April’s presidential and parliamentary elections. The governor said economic growth will probably pick up this year, and authorities need to work harder to boost exports. The relaxation in macroprudential norms will support growth and lead to a loan growth of 12 percent this year, Warjiyo said.



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