The forecast for the global economy is partly cloudy, with a chance of a devastating trade war

The best way to describe expectations for the global economy is, in a word, “meh.” Three-quarters of the 138 countries with sovereign credit ratings by Moody’s

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The best way to describe expectations for the global economy is, in a word, “meh.” Three-quarters of the 138 countries with sovereign credit ratings by Moody’s have a “stable outlook,” the agency said in a report published today. The remaining countries are almost evenly split between negative and positive outlooks. This overwhelmingly “stable” outlook is a sign of the rather uninspiring outlook for growth. It’s not necessarily bad, but not all that great either. There is a “continued, albeit slowing, growth momentum in the global economy,” Moody’s analysts wrote.

The celebrated synchronized upswing in economic growth last year that excited global business leaders at Davos at the start of this year, started to break down almost immediately. As growth continues to slow, “divergence” will probably be the buzzword of 2019. Growth for G20 economies will peak this year at 3.3% and slow next year to 2.9%, Moody’s forecasts.

While the US remains a key driver of global growth, it’s also the source of one of the world economy’s biggest risks. “The most potent, far-reaching source of geopolitical risk in 2019 will be US trade policy,” the analysts wrote. The direct impact of tariffs could be of secondary importance to the indirect negative impact the Trump administration’s “America First” policies have on global investor confidence and investment. Imposed and threatened tariffs could amount to $1.3 trillion, or 1.6% of world GDP and 7.3% of world imports, Moody’s calculates.

Aside from the US tariffs targeted primarily at China, a decision to implement Trump’s proposal to add tariffs on all imported cars and auto parts would pose a “significant” risk to global economic growth next year, hitting Germany, Japan, and South Korea particularly hard. The chart below shows how tariffs have built up recently, most of them initiated by the US followed by others enacted in retaliation.

Source :

QZ

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