The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday, adding that the outlook could darken considerably if trade tensions remain unresolved.
The IMF said its latest World Economic Outlook projections show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from global trade friction.
The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, where the Fund’s new managing director, Kristalina Georgieva, is inheriting a range of problems, from stagnating trade to political backlash in some emerging market countries struggling with IMF-mandated austerity programs.
The World Economic Outlook report spells out in sharp detail the economic difficulties caused by the U.S.-China tariffs, including direct costs, market turmoil, reduced investment and lower productivity due to supply chain disruptions.
The Hapag-Lloyd AG Leverkusen Express sails out of the Yangshan Deepwater Port, operated by Shanghai International Port Group Co. (SIPG), in this aerial photograph taken in Shanghai, China, on Wednesday, Aug. 7, 2019.
Qilai Shen | Bloomberg | Getty Images
The global crisis lender said that by 2020, announced tariffs would reduce global economic output by 0.8%. Georgieva said last week that this translates to a loss of $700 billion, or the equivalent of making Switzerland’s economy disappear.
“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement.
Services were still strong across much of the world, but there were some signs of softening in services in the United States and Europe, Gopinath said.
For 2020, the Fund said global growth was set to pick up to 3.4% due to expectations of better performances in Brazil, Mexico, Russia, Saudi Arabia, and Turkey. But this forecast was a tenth of a point lower than in July and was vulnerable to downside risks, including worse trade tensions, Brexit-related disruptions and an abrupt aversion to risk in financial markets.
Investment, trade stall
The IMF said foreign direct investment abroad by advanced economies came to “a virtual standstill” in 2018 after increasing in earlier years to average more than 3% of global gross domestic product annually – or more than $1.8 trillion.
The institution said the decline of some $1.5 trillion between 2017 and 2018 reflected purely financial operations by large multinational corporations, including in response to changes in U.S. tax law.
Global vehicle purchases fell by 3% in 2018, reflecting a drop in demand in China after expiration of tax incentives and production adjustments after adoption of new emissions standards in Germany and other eurozone countries.
Global trade growth reached just 1% in the first half of 2019, the weakest level since 2012, weighed down by higher tariffs and prolonged uncertainty about trade policies, as well as a slump in the automobile industry.
After expanding by 3.6% in 2018, the IMF now projects global trade volume will increase just 1.1% in 2019, 1.4 percentage points less than it forecast in July and 2.3 percentage points less than forecast in April.
Trade growth was expected to rebound to 3.2% in 2020, however risks remained “skewed to the downside,” the IMF said, with a significant drag on both the U.S. and Chinese economies.
For a table showing IMF country and regional forecasts, see
Tariff, reshoring losses
New IMF projections show China’s GDP output falling 2 percent in the near term under the current tariff scenario and 1 percent in the long term, while U.S. output would decline 0.6 percent over both time spans.
“To rejuvenate growth policymakers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions and reduce domestic policy uncertainty,” Gopinath said.
But she was cautious about President Donald Trump’s announcement on Friday of a “Phase 1” U.S. trade deal with China, saying that more details were needed about the “tentative” deal.
The IMF also modeled what would happen if multinational firms in the United States, euro area and Japan reshored enough production to reduce nominal imports by 10%. The lender found that it would drive up consumer prices and reduce domestic demand, while throttling the spread of technology to emerging economies.
“At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions,” it said. “Further escalation of trade tensions and associated increases in policy uncertainty could weaken growth relative to the baseline projection.”
US-China trade deal mood is pessimistic in Beijing, according to government source
The mood in Beijing about a trade deal is pessimistic due to President Donald Trump’s reluctance to roll back tariffs, which China believed the U.S. had agreed to, a government source told CNBC’s Eunice Yoon.
Stocks opened down on the trade headlines.
The U.S. and China agreed to work on a limited “phase one” trade deal in early October. China has pushed for a removal of the additional duties imposed on each other’s products in different phases, as part of the deal. Chinese Commerce Ministry spokesperson Gao Feng said earlier this month that the two sides had reached an agreement on the tariff rollback.
However, Trump said a week ago that he has not agreed to scrap tariffs on Chinese goods, contradicting the signal from China and dampening hopes about a coming resolution to a jarring trade conflict.
The Chinese are looking carefully at the political situation in the U.S. including the impeachment hearings and the presidential election, the source said, adding the officials are wondering if it is more rational to wait things out since it is unclear what Trump’s standing will be even in a few months.
There is disagreement over issues such as a specific number of agricultural purchases, the source said. The Chinese are resisting because, in part, they could risk alienating other trading partners, the source told CNBC.
The trade war between the world’s two largest economies has dragged on for nearly two years. The Trump administration has slapped tariffs on more than $500 billion in Chinese goods, while Beijing has put duties on about $110 billion in American products.
Trump hopes to resolve outstanding gripes with Beijing’s trade practices, including forced technology transfers and intellectual property theft, while securing more Chinese purchases of U.S. agricultural goods.
The White House did not immediately respond to CNBC’s request for comment.
The Chinese Ministry of Commerce said Sunday that the two sides had “constructive discussions” about “each other’s core concerns” and agreed to remain in close contact. Meanwhile, White House economic advisor Larry Kudlow said Friday that the two countries were “getting close” to reaching a trade deal.
Mike Sievert to succeed John Legere as CEO of T-Mobile on May 1, 2020
Shares of T-Mobile were up slightly in afternoon trading after opening down 1.5%.
Sievert has been the heir apparent as Legere was expected to step down as CEO once T-Mobile’s merger with Sprint is completed. Legere’s contract ends on April 30, 2020, according to the announcement. Leger tweeted Monday that the decision “has been under development for a long time.”
CNBC’s David Faber reported in July that Sievert was expected to take over as CEO once the deal closes. The $26 billion merger has cleared key hurdles on the federal level but still faces a legal challenge from a team of state attorneys general seeking to block the deal. The case will go to trial next month.
When T-Mobile and Sprint first announced their intention to merge in April 2018, the companies said Legere would lead the combined business as CEO, with Sievert continuing to serve as President and COO.
Legere’s next move is still not known. CNBC and The Wall Street Journal reported last week that WeWork had spoken to him about taking over as CEO following Adam Neumann’s ouster. But CNBC later reported that Legere is not taking the job, according to people familiar with the matter. On a conference call Monday, Legere denied that he was ever in talks to be the WeWork CEO.
Legere was named T-Mobile’s CEO in 2012 and made a number of aggressive moves to increase the company’s wireless subscribers as it faced steep competition from its larger rivals, AT&T and Verizon. As other carriers pushed customers to sign up for wireless plans with data caps, Legere created unlimited wireless plans for T-Mobile and offered to pay termination fees for customers who switched over. Eventually, the rest of the industry followed suit and offered unlimited plans as well.
Legere was also responsible for bringing the iPhone to T-Mobile for the first time. And he went through multiple merger talks with Sprint over the years before finally locking the deal down in April 2018. The company expects to complete the merger next year.
Intelsat stock drops as FCC will auction satellite spectrum for 5G
Brad Quick | CNBC
The Federal Communications Commission (FCC) announced on Monday that it will publicly auction off a valuable telecommunications asset, in a move investors viewed as a blow to U.S. satellite communications provider Intelsat.
Shares of Intelsat dropped more than 40% in heavy trading volume after FCC Chairman Ajit Pai said in a tweet that his agency “must free up significant spectrum” for 5G telecommunications. The FCC told CNBC that it expects an auction to happen “before the end of 2020.”
“I’ve concluded that the best way to advance these principles is through a public auction of 280 megahertz of the C-band,” Pai said. “I’m confident they’ll quickly conduct a public auction that will give everyone a fair chance to compete.”
C-band spectrum is a key telecommunications wavelength the FCC regulators. Four satellite operators, including Intelsat, provide C-band services in the U.S. to about 120 million households. The FCC wants to repurpose the C-band spectrum for 5G and an auction is expected to raise tens of billions of dollars. But a public auction would see the proceeds go to the government, an option the satellite operators – organized as the C-Band Alliance – have opposed.
“The fundamental issue here is that there’s the ideal and there’s the practical. Everyone recognizes the best use of this spectrum is for 5G services – but what is the most economical and timely way to do that?” Chris Quilty, president of satellite financial services firm Quilty Analytics, told CNBC. Quilty formerly led Raymond James’ coverage of sattellite communications and the broader space industry for 20 years.
The C-Band Alliance have been pushing for a private auction. The group on Friday gave a proposal to the FCC where the satellite operators would keep some of the proceeds while paying taxes on the sale, as well as contributing at least $8 billion to the U.S. Treasury and possible helping fund a rural 5G network.
“The private auction would generate billions in proceeds for Intelsat and the other C-band operators,” Quilty said. “The potential C-band proceeds gave Intelsat a path for deleveraging, which has otherwise escaped the company for the past 10 years.”
Intelsat had a market value of about $1.8 billion before trading began on Monday. Even before the latest drop, Intelsat’s stock had dropped more than 10% on three consecutive trading days as the tide shifted against the C-Band Alliance. The FCC’s announcement of a public auction means the satellite companies may not recoup the value of their C-Band investments, such as the expensive satellites.
“What we’ll likely see happen, which is the worst case scenario, is that the satellite operators have every incentive to drag their heels and take this to the courts, because they’re no longer being compensated for this spectrum,” Quilty said. “People are assuming they’re still going to get something but they’re not going to get the $8 billion to $10 billion windfall they were expecting.”
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