So far, so good — global growth remains on track to hit a projected 3.2 percent for 2018, but trade policy risk could be the biggest threat down the road.
That’s according to The Conference Board’s current look at world GDP rates. The Board’s economists said at a presentation on Monday at the company’s Manhattan headquarters that the short term — or six months out — looks good. Even if there’s an escalation in either tariffs or quotas, which would raise some risks, the impact won’t be felt until 2019 or 2020. Those risks include disruptions in the supply chains, and possible slowdowns if businesses hold off on investments and hiring on the labor front.
Brian Schaitkin, U.S. economist, when asked about his thoughts on the June 12 summit in Singapore between U.S. President Trump and North Korea’s president Kim Jong Un, said, “There’s a remote chance there will be a downside that is so great that it would impact the near term [economic expectations].”
As for tensions over the weekend at the G-7 summit where there seemed to be a feud rising between the U.S. and its allies, Brian van Ark, chief economist, said that while the outlook suggests there could be greater trade barriers ahead, he also cautioned that trade tensions have always existed between countries. One example is the lumber trade between the U.S. and Canada. One big difference this time is the “lively vitriol, which is now of a different caliber than in the past.” Van Ark said that while the risks could increase, the bigger question is ‘How could the supply chains be disrupted?’” Of course, should current negotiations spiral out of control, causing an escalation in terms of tariffs or quotas, an economic downtown could be triggered sooner rather than later. That could mean companies need to make quick transitions to domestic or other foreign suppliers, which in turn would require those suppliers to scale up quickly.
For now, the U.S. is expected to grow 3 percent for the year, up from 2.4 percent in 2017. Policy measures, such as the tax cuts earlier this year, and spending stimulus are helping to provide a boost in upward momentum for the second half, the economists said.
Van Ark also spoke about the return to an “old normal” where a combination of wage increases, inflation and interest rate increases could impact the Federal Reserve’s response, which in turn would play a role in shaping economic conditions this year and next year.
Helping the U.S. economy stay in track is the record low unemployment rate, with the difficulty in hiring “blue collar” workers compared with recent years cited as one example.
The labor market is a big component of consumer confidence. Lynn Franco, who tracks consumer behavior and the Board’s Consumer Confidence Index, said, “Confidence remains at all-time highs.” She noted that it takes a big crisis to change consumer behavior.