“A worldwide escalation of the trade tensions between the US and its major trading partners would have consequences for global trade equivalent to the 2008 financial crisis, the World Bank has warned.
“Using conservative estimates to assess the risks to the world economy from rising economic nationalism of the kind promoted by Donald Trump, the Washington-based organisation warned of “severe consequences” for world trade and economic growth, with the harshest impact reserved for developing nations.
“Under the scenario outlined in its latest global economic prospects report published on Tuesday, the bank found a broad-based increase in the use of import tariffs worldwide – to the maximum levels permitted by the World Trade Organisation – would trigger a decline in global trade amounting to 9%.
“While that would be similar to the drop experienced during the financial crisis of 2008-09, it warned the impact could be even greater if countries went further than the WTO rules…”
“It is increasingly difficult to justify the complacency in global financial markets in the light of the magnitude and potential significance of events in the United States, Europe and beyond which could be defining elements of the next global financial crisis.”
“The Federal Reserve’s next interest rate increase will mark a key milestone as the era of cheap dollars draws to a close, further unsettling a U.S. bond market already rattled by rising inflation and government debt supply… Next Wednesday the U.S. central bank will likely raise key overnight borrowing costs to roughly match its target for inflation, meaning that for the first time in almost a decade the cost of borrowing dollars will no longer be essentially free.”
“Foreign investors pulled $12.3 billion from emerging markets last month — the largest outflow since November 2016, according to the Institute of International Finance.”
“Pro-business leaders in South America’s largest economies are struggling to spark growth as their policies run head-on into domestic crises and emerging market turbulence.”
“Brazil’s extraordinary efforts to shore up its currency weren’t enough to stem a rout that left the real at the weakest level since former President Dilma Rousseff’s impeachment in 2016.”
“… monetary policy tightening in the United States is pressuring the currencies of emerging markets: the Turkish lira is down more than 18% against the USD year-to-date (and more than half its value since 2013). This in turn makes it harder for Turkish companies to service their foreign debt. Currency depreciation coupled with rising oil prices have also contributed to widening the country’s current account deficit.””
“South Africa’s economy contracted at the sharpest rate in almost a decade in the first three months of the year, according to official statistics, underlining the challenge confronting President Cyril Ramaphosa’s bid to revive growth.”
“A financial crisis due to US dollar shortages is likely to occur in Asia, which seems to be in a similar situation as it was on the eve of the Asian financial crisis of 1997-98. The approaching crisis has profound and complicated implications.”
“A growing number of private firms [in China] could face cash flow problems in the second half of the year as they are the most vulnerable to the government’s crackdown on shadow banking.”
“Japan’s household spending unexpectedly contracted in April and services sector activity slowed in May, figures out on Tuesday showed, raising the possibility of the economy falling into recession this quarter.”
“Australian new home sales fell heavily in April, adding to a long list of housing market indicators that are weakening at present.”
“One would have thought, in the circumstances, that bankers might have learned their lesson. Yet some bankers still seem to think that big is better. The Financial Times reported this week that UniCredit, based in Milan and with operations across Europe, is pursuing a possible merger with Société Générale, based in Paris and also with operations across the continent.”
“In 2008 and 2009, after the global financial crisis brought RBS close to the brink of collapse, the British government spent £45.5 billion ($60.9 billion) in taxpayer funds to bail it out. Now, the government’s determination to sell down its majority stake in the troubled lender is saddling the state with heavy losses.”
“…my analysis produced some alarming results. The safety net… struggles to cope with widespread shocks. Providing the same level of support today that was provided during the Asian financial crisis would exhaust all currency swap lines, all regional mechanisms, all regional development banks and the entire World Bank, and would require exceptional access to the IMF’s resources. If the European debt crisis occurred today, the entire global financial safety net would be exhausted.”