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Charles Benavidez

Charles Benavidez

Staff Writer, Safehaven.com

Charles Benavidez is a writer and editor for Safehaven.com. Charles is located in New York City and has over 5 years of experiencing covering financial…

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Is The Global Economy Growing Or Slowing?

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Everything from flu-sick workers in Germany to trade war tensions the world over are sending mixed signals about global economic growth, which some say has halved in the first quarter of the year, while others predict another growth spurt on adrenaline.

It depends who you ask, and what you want to hear.

The rapid expansion of the global economy is over, and it’s getting worse, with growth largely dropping by half in the first quarter of this year along, says Swiss banking giant, UBS.

Between the fourth quarter of 2017 and the first quarter of 2018, global economic growth slowed by 0.7 percent taken as a whole, and by 1 percent if the U.S. is not included in the bank’s economic modeling.

After leading global expansion with a fervor, the Eurozone has been dragging global numbers down since February, according to UBS.

And no one’s sure exactly what’s causing it, but some noted flu-stricken German workers and bad weather.

"A good chunk of that weakness is the Eurozone where 7% of the German labour force was out sick (flu) and severe weather disruptions have dragged on the data," UBS said.

Last year was a stellar one for Europe. Unconventional monetary easing gained traction, global trade expanded, and the end of EU fiscal tightening and rising business confidence led to more spending all around, according to the Financial Times. Related: This State Has A Bigger Economy Than Russia

By the fourth quarter of last year, the Eurozone was still growing at a 3.5-percent rate, with Germany leading the pack with 4 percent, following by Spain with 3.5 percent and France with 3 percent.

(Click to enlarge)

But it hasn’t carried over to 2018, but according to Fulcrum’s Nowcast, cited by FT, activity growth dropped to only 1.2 percent in early April, and all major economies in the zone were seeing a sharp decline in growth, and Germany’s was down to only around 1 percent.

The Institute of International Finance (IIF) has a different outlook—but it’s U.S.-centric. Not only is it not getting worse, but the global economy is expected to grow faster in 2018 than we thought before thanks to U.S. tax reform, largely.

The big problem, the IIF says, is trade tensions, which could derail synchronized global expansion.

The institute has even upped its forecast for global growth this year by 0.2 percentage points to 3.5 percent—up from 2.9 percent in its earlier forecast.

According to the IIF, the U.S. economy grew 2.3 percent last year and it will drive the institute’s more ambitious growth targets this year as well.

"You have the US, where there is important fiscal stimulus because of tax reform, and this is going to boost consumption and investment," said IIF deputy chief economist Sergi Lanau.

But the institute also cautions that trade and protectionism coming out of the U.S. could change that forecast negatively.

Supporting the UBS’ gloomier outlook to some extent, the IIF also noted that Germany was giving up weak economic data over trade uncertainty (not the flu), while Reuters notes that German exports took a beating in February, with their biggest monthly loss in more than two years. The IIF also cited export data in Japan and Korea as further evidence that trade uncertainty was taking its toll.

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Trade isn’t the only risk to global growth numbers, according to the IIF. Inflation is a second threat; however, Reuters quoted Lanau as saying that with oil prices being the key driver for U.S. inflation, “our view is that in the second half of the year oil prices will moderate, especially because when prices go up shale producers in the U.S. ramp up production.”

The International Monetary Fund (IMF), in the meantime, has forecast 3.9 percent global growth, and while they’re not downgrading that for the time being, they have warned of an “inexcusable, collective policy failure” that could see trade tensions undermine the world economy.

By Charles Benavidez for Safehaven.com

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