IMF cuts global growth forecast. Citing "further disruptions in trade policies" and weakening emerging market economies, the International Monetary Fund (IMF) lowered its global growth forecasts to 3.7 percent this year, down from 3.9 percent it forecasted on April. "Two major regional trade arrangements are in flux - NAFTA (where a new trilateral agreement awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit). US tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation," outgoing IMF chief economist Maurice Obstfeld said.
UK growth flattens in August but quarterly picture is brighter. UK gross domestic product (GDP) growth flattened in August as the increase in industrial production was offset by a contraction in the construction and the farm sectors, the Office for National Statistics (ONS) reported this week. GDP growth in August flattened to zero percent from 0.4 percent in the previous month, missing City economists’ forecasts of 0.1 percent growth. However, in the three months to August, the UK economy grew by 0.7 percent, buoyed by the hot summer, the ONS said. Analysts cautioned that the weak August reading could serve as a warning signal for weaker economic growth in the coming months, underpinned by mounting concerns over the risks from a no-deal Brexit.
US producer prices increase for first time in three months. A report released by the US Labor Department on Wednesday showed that producer prices rose in September, with increase in prices for services offsetting a modest drop in prices of goods, including a 3.5 percent drop in gasoline prices. The Labor Department said its producer price index for final demand increased by 0.2 percent in September, reversing a drop of 0.1 percent in August. Economists had expected prices to rise by 0.2 percent. September’s rise in producer prices was the first monthly rise since June. Yields on US Treasury bonds rose on this news. In the meantime, US consumer prices rose less than expected in the 12 months through September, with an increase of 2.3 percent, slowing from an August reading of 2.7 percent.
China loosens monetary policy. In a bid to support the economy, China’s central bank announced early this week that it will cut the amount of cash lenders must set aside as reserves, freeing up additional liquidity in the banking system. The People’s Bank of China lowered the reserve requirement ratios (RRRs) by one hundred basis points for most commercial banks and for all the foreign banks, according to its statement. The announcement of the cut comes at a time when escalating trade tensions with the US have cast a shadow on the country’s economic outlook.
US, Canada and Mexico reach new trade deal to replace NAFTA. The US and Canada struck a deal on trade and announced the framework for a new, revised North American Free Trade Agreement (NAFTA) - now known as the United States-Mexico-Canada Agreement, or USMCA. The agreement will give American farmers a bit more access to Canada’s dairy market but the much larger car trade will become less free. The US agreed to keep NAFTA’s dispute-settlement mechanism.
Reserve Bank of India springs surprise as it keeps rates on hold. In a surprise decision, the Reserve Bank of India (RBI) opted to keep its benchmark interest rates unchanged as it weighed risks to the economy from global monetary policy tightening, trade tensions and rising oil prices. The decision sparked a sell-off in the Indian currency, the rupee, and the nation’s stock market. The RBI’s pause after two hikes since June contrasts with its peers in Indonesia and the Philippines. Notwithstanding the pause, the RBI signalled that it is not done with rate increases.
Brazil’s far right candidate likely to become next President. Jair Bolsonaro, a far-right candidate who is contesting the presidential election in Brazil, nearly won an outright majority in the election’s first round held on October 7. Having secured 49 percent of the votes cast, he will face the left wing candidate Fernando Haddad, who took up 29 percent of the vote, in a run-off on October 28. Mr Bolsonaro, who is widely expected to win the second round to become Brazil’s next president, favours a smaller state and announced plans to lower taxes, privatise state companies and limit foreign ownership of natural resources.
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