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Another Bank Turns Gloomy on Trade War-Battered Global Economy By Bloomberg

© Reuters.  Another Bank Turns Gloomy on Trade War-Battered Global Economy

ECONOMIC NEWS

Another Bank Turns Gloomy on Trade War-Battered Global Economy By Bloomberg


© Reuters. Another Bank Turns Gloomy on Trade War-Battered Global Economy

(Bloomberg) — Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

Berenberg, Germany’s oldest bank, has given up hope that U.S.-China trade tensions will subside any time soon — with severe consequences for export-reliant nations.

Economists slashed their 2020 growth forecasts for countries including Japan, Germany, France, Italy and the U.K. They expect the euro area will expand by just 0.9%, down from 1.4% predicted only a few months ago. That would be the worst performance for the 19-nation region since 2013.

The dire warning follows a similarly downbeat assessment by Commerzbank (DE:), which overhauled its outlook last week and said it no longer expect China’s stimulus program to translate into significantly faster expansion.

The downgrades come as warnings of a deeper global downturn multiply — the German economy shrank in the second quarter and yields on U.S. long-term bonds fell below their shorter equivalents in what is typically seen as a harbinger of a recession. While President Donald Trump recently pulled back from imposing some additional tariffs on Beijing, no end to the conflict is in sight.

“Following the recent severe escalation, we no longer assume that the U.S.-Chinese trade war will be defused at least somewhat by a partial deal within the next six months,” Berenberg’s Chief Economist Holger Schmieding and his London-based team said in a note on Thursday. “Continuing trade tensions prolong the downturn in global trade and industry until at least spring 2020.”

Their argument is that a deepening industrial slump will eventually spread to services and labor markets, resulting in slower growth in the second half than in the first in most developed countries.

Berenberg believes that some trade-dependent countries such as Germany “face a genuine risk of recession if trade tensions escalate further and Chinese domestic demand remains soft.”

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