Overseas Headlines- March 5, 2019

United States:

Trump’s Trade Step Shows U.S. Can Hit Turkey Where It Hurts

President Donald Trump’s decision to strip some Turkish exporters of their preferential trade status is taken from a playbook that’s been effective in the past. American officials are pressing Ankara to abandon its longstanding agreement to buy a Russian air defense system. The last time Washington ratcheted up pressure on its NATO ally to force it to yield on a key issue — and release a long-held American pastor — it drove the Turkish economy to the brink of collapse, and it’s not fully recovered. Monday’s trade move “is a political step aimed at preventing Turkey from purchasing S-400 missiles from Russia,” Ilter Turan, a professor of international relations at Istanbul’s Bilgi University, said by phone on Tuesday. “The U.S. is clamping down on Turkey’s potential to increase its exports to the U.S. market, knowing that it will hurt the country’s economy.” Among countries that have faced Trump’s trade threats, Turkey is an outlier. The U.S. runs a surplus with Turkey, leaving less of an economic justification for altering terms of trade. The U.S.’s largest trade deficits are with China, Mexico, Germany and Canada, each of which has been under pressure to renegotiate trade deals. About $1.7 billion in Turkish exports will be affected, or about 1 percent of Turkey’s total exports, according to a Congressional Research Service report issued in January.



Italian Economy Shrank Less Than First Seen, Still in Recession

Italy’s economic contraction at the end of last year was less than first estimated, but the economy still slipped into a recession that’s cast doubts on the populist government’s growth targets. The economy shrank 0.1 percent in the three months through December, less than the 0.2 percent drop in an initial reading. That was still the second consecutive quarterly decline, meaning Italy was the only nation in the euro region slipping into a technical recession in that period. Inventories were the only component that had a negative contribution on the quarterly change in gross domestic product. Consumption increased by 0.1 percent in the fourth quarter as exports rose by 1.3 percent, statistics agency Istat said in releasing the figures on Tuesday in Rome. Inventories contributed negatively to the economy’s performance in the period. Gross domestic product in the final quarter of 2018 was unchanged from the same period in 2017. Employers lobby Confindustria warned on Monday that the recession is set to continue in the current quarter amid declining industrial output. In Brussels, the European Commission said last week that Italy’s massive public debt and long-lasting productivity weakness pose risks for other European countries.



China Lowers Growth Target and Cuts Taxes as Economy Slows

China lowered its goal for economic growth and announced a major tax cut, as policymakers seek to pull off a gradual deceleration while grappling with a debt legacy and the trade standoff with the U.S. The gross domestic product growth target released Tuesday morning in Premier Li Keqiang’s annual work report to the National People’s Congress was set at a range of 6 to 6.5 percent for 2019. The shift to a band from the previous practice of using a point figure gives policy makers room for maneuver and compares with last year’s “about” 6.5 percent goal. The lower bound of the GDP target would be the slowest pace of economic growth in almost three decades, a consequence of China’s long deceleration as policy makers prioritize reining in debt risks, cleaning up the environment and alleviating poverty. Warning of a “tough economic battle ahead,” Li announced tax cuts worth 2 trillion yuan ($298 billion) for the year. “These targets accommodate structural deceleration but not cyclical, which means that policy makers will need to flex their muscles to stimulate the economy,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “It’s good news for the market in the short term; bad news for China in the medium term as more leverage will need to be piled up.”


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