United States:
U.S. January Trade Gap Narrows as Imports From China Plummet
The U.S. trade deficit pulled back in January from the widest level in a decade as imports from China plunged, suggesting American companies had been rushing shipments the prior month to beat an expected tariff boost. The deficit in goods and services narrowed to $51.1 billion, the Commerce Department said Wednesday, smaller than the median estimate of economists. Imports fell 2.6 percent while exports rose 0.9 percent. The merchandise-trade gap with China — the target of President Donald Trump’s trade war — shrank to $33.2 billion as imports from the nation dropped 12.3 percent. Levies on Chinese goods had been set to increase on Jan. 1 before Trump put them on hold while trying to work out an accord with China over the trade war, while the Lunar New Year holiday also tends to cause swings in the figures early in the calendar year. Trump may yet have difficulty achieving his goal of a sustainably lower deficit as slowing global growth and a strong dollar weigh on exports, while American demand continues to support shipments of imported goods. U.S. and Chinese officials resume talks this week on a deal that could be a step toward economic peace, with signs that both sides want to avoid any escalation of the eight-month trade war. Trump’s top trade negotiator is due to visit Beijing on Thursday and Friday, while China’s lead official plans to travel to Washington the following week. The January trade data compared with a $59.9 billion deficit in December that was a 10-year high and a median estimate of economists surveyed by Bloomberg calling for a deficit of $57 billion. The trade deficit widened last year to $621 billion, also a 10-year high, as tax cuts boosted domestic demand for imports and a strong dollar weighed on exports.
Europe:
Draghi Says ECB May Need to Soften the Impact of Negative Rates
Mario Draghi said the European Central Bank is ready to soften the impact of negative interest rates if they are found to harm the transmission of its monetary policy. “If necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy, while mitigating the side effects, if any,” the ECB president told a conference in Frankfurt. “That said, low bank profitability is not an inevitable consequence of negative rates.” Draghi didn’t elaborate on what measures the ECB might adopt to take the edge off its negative rate policy. The institution has kept its deposit rate below zero since June 2014. More recently, banks have amplified complaints that the measure is eating into profit margins, threatening to hamper credit supply. While policy makers have insisted the negative policy remains part of their toolkit, some have warned in recent months about keeping rates below zero for too long, on the basis that by eroding bank profitability they could prevent stimulus from reaching the economy. Executive Board member Yves Mersch said the ECB’s crisis responses were necessary to support the recovery, though acknowledged they can have side effects and the ECB is assessing these. “It is true that some of these tools have been unpopular, but central banks are no strangers to unpopularity.” The ECB is one of the few central banks that adopted negative rates without adopting mitigating measures. The Bank of Japan, Swiss National Bank and Danish central bank are using different versions of a so-called tiering system that excludes most of the reserves commercial banks deposit from the penalty that a negative rate policy imposes.
Asia:
Malaysia Central Bank Pledges Support as GDP Forecasts Cut
Malaysia lowered its economic growth forecast for 2019, and pledged to keep monetary policy accommodative as global risks weigh on the trade-reliant economy. Gross domestic product is expected to increase 4.3 percent to 4.8 percent in 2019, with trade tensions and lower commodity prices among the biggest wildcards, Bank Negara Malaysia said in its annual report on Wednesday. The projection marks a step down from the 4.9 percent expansion estimated in the government’s budget released in November, and compares with a 4.7 percent pace recorded in 2018. The downgrade in the growth outlook was mainly due to worsening global conditions, Governor Shamsiah Yunus told reporters in Kuala Lumpur. Growth will probably come in at the lower end of the forecast range if downside risks — such as a sharper moderation in global demand and an escalation of trade tensions — become reality, she said. “Recognizing the downside risks to domestic growth, the thrust of monetary policy in 2019 is to remain accommodative to ensure supportive conditions for sustainable economic growth amid the subdued inflation outlook,” the governor wrote in the report. “The bank strives to identify and manage risks before they become destabilizing, while building policy space and buffers preemptively.” Bank Negara joins a growing list of central banks that are acknowledging the increasing risks to growth, as moderating exports and weakening consumption spur bets for monetary easing across the globe. The Southeast Asian economy is also trying to keep growth afloat while reining in public spending to narrow its biggest fiscal deficit in five years.
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