Overseas Headlines: August 15, 2019

Date: August 15, 2019

United States:

Trump’s Re-Election Now at the Mercy of a Slowing Economy

“The growing odds of a recession before the 2020 election threaten to crush President Donald Trump’s hopes of a second term. Though still uncertain, such a scenario would be a political gift to Democrats, who have avoided talking about the nearly full employment, record stocks and low inflation so far in the Trump presidency. Instead, the candidates have highlighted rising income inequality and untenable costs of health care and college to argue that the working class isn’t feeling the boom. But this week, fears of a broader downturn arose. The S&P 500 sank almost 3% on Wednesday and the Dow Jones Industrial Average plunged 800 points in its worst rout of the year, sparked when the 10-year Treasury rate slid below the two-year for the first time since 2007, a harbinger of a possible downturn. With a global factory slowdown and Trump’s trade war already weighing on growth, the chances that the U.S. will tip into a recession within the next year have risen to 35%, according to an August survey of economists by Bloomberg News. “Short of Justices Gorsuch and Kavanaugh disclosing membership in the Communist Party, it is hard to think of any development that could undercut Trump more than a recession,” said Jack Pitney, a professor of government at Claremont McKenna College. “He promised the religious right that he would give them judges and he promised the rest of his base that he would give them prosperity. Take away prosperity, and he won’t have a prayer,” he said. At least one Democrat took notice of the signs. Senator Elizabeth Warren, who posted a Medium blog in July about the economic slowdown, tweeted Wednesday that “the warning signs for another recession are flashing. We need to pay attention and act now, while we still have time to avert a downturn.” Economic trends tend to predict election outcomes, and recessions can be kryptonite for the party in power. In the last century, the only elected presidents who lost re-election did so after overseeing a recession — George H.W. Bush in 1992, Jimmy Carter in 1980 and Herbert Hoover in 1932.”




As Europe Struggles, Ukraine’s Economy Heads for an Upswing

“As economic growth falls across Europe, Ukraine may be embarking on an upswing. Data this week showed expansion in the former Soviet republic surged last quarter, even as U.S.-China trade tensions and a wider global slowdown weighed on most of the continent. The pace — 4.6% — was unexpectedly quick. The World Bank had warned that if growth didn’t top the rate of recent years it would take half a century to bring income up to the levels of neighboring Poland, which has thrived since joining the European Union. President Volodymyr Zelenskiy, who won control of parliament last month, has set his sights on expansion of 5% or more in the coming years. A reform plan is fueling optimism among investors and has made the hryvnia this year’s best-performing currency. “The initial signs are encouraging,” said Viktor Szabo, investment director at Aberdeen Asset Management PLC in London, who helps oversee $14 billion in emerging-market debt. Aberdeen has an overweight position in Ukrainian bonds and Szabo rues the company’s early disposal of warrants linked to economic growth issued after a 2015 government debt restructuring. He expects a “bold” program with the International Monetary Fund to be agreed on once a new government is in place next month, though says an overhaul of the country’s murky court system is vital to the new president’s success. Ukraine’s economy has had a rocky ride since 2014, when protesters ousted Kremlin-backed Viktor Yanukovych and Russia seized Crimea before fomenting a war on the two nations’ border. With the pro-EU administration that followed not tough enough on corruption, the rebound from recession was meager. That paved the way for Zelenskiy, a former TV comic and political novice, to take power. His plans highlight where the previous government fell short: judicial reform, privatization and loosening rules on owning farmland. Meanwhile, inflation has eased, allowing the central bank to trim eastern Europe’s highest benchmark interest rate. That boosted consumer confidence, whcih “improved significantly following Zelenskiy’s victory,” according to Morgan Stanley strategist Alina Slyusarchuk, who raised this year’s forecast for GDP to 3.7% from 2.4% after Wednesday’s data. Local businesses are similarly enthused, now seeing rosier prospects for the economy, according to a regular survey by the central bank.”




China Signals U.S. Tariff Delay Not Enough to Stop Retaliation

“China called planned U.S. tariffs on an additional $300 billion in Chinese goods a violation of accords reached by Presidents Donald Trump and Xi Jinping, signaling an American move earlier this week to delay some of those levies was not enough to stave off retaliation. The new 10% tariffs have taken the U.S. and China off the track of resolving their dispute through negotiation, the State Council Tariff Committee, which has overseen tit-for-tat retaliation, said in a short statement on Thursday. China “has no choice but to take necessary measures to retaliate,” it said, without specifying what the nation would do. European stocks declined and U.S. equity futures fell. The Stoxx Europe 600 index moved lower while the three main American equity contracts dropped. Trump announced the new tariffs this month, after which China halted purchases of agricultural goods and allowed the yuan to weaken. Still, top negotiators held a phone call earlier this week and the U.S. delayed the imposition of some of the new tariffs. Negotiators also agreed to have another phone call in the coming two weeks and people familiar said earlier the Chinese delegation is sticking to their plan to travel to the U.S. in September for face-to-face meetings. The statement indicates that China doesn’t think the U.S. delaying some of the tariffs is enough, said Zhou Xiaoming, a former Ministry of Commerce official and diplomat. China is very serious and is sticking to the position that no new tariffs should be imposed at all, he said, adding that China’s retaliation “may not be limited to tariffs.” Hu Xijin, the editor-in-chief of the Communist Party’s Global Times newspaper, echoed that sentiment. He tweeted before the Thursday announcement that China wants both sides to respect the consensus reached when Trump and Xi met in Osaka in June. “I doubt the Chinese side will resume large-scale purchase of U.S. farm goods under the current circumstances,” he said. Less than 12 hours before the Chinese statement on retaliation, Trump appeared to float the possibility of another meeting with Xi. In a flurry of tweets, Trump defended his tariffs decisions, praised Xi and urged the Chinese president to “humanely” resolve the protests that have gripped Hong Kong for more than two months. He ended the posts with an apparent overture to Xi — writing “Personal meeting?” — without clarifying whether he was suggesting another summit. Thursday’s statement could indicate that it won’t take long for China to reveal its own retaliatory tariffs, according to Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing. The response is about expressing China’s stance even though policy makers know the impact on the U.S. economy will be limited, he said.”


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