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TOKYO – The global economy is expanding, supported by significant tax cuts in US and Asian investments in labor-saving equipment, despite the fears about the impact of the US-China trade dispute
This trend is beginning to dampen the business and investor climate. Finance ministers and central bankers have expressed concern over the prospects for international trade at the Group of 20 leaders summit on Saturday. Risks to the global economy, such as soaring crude oil prices and rising US interest rates, are also increasing.
Sales of jeweler Tiffany, whose same-store sales jumped 9% year-over-year in the February-April quarter. Tax cuts and higher spending will add 0.7 percentage points to the US real gross domestic product this year, according to a forecast by the Japan Research Institute.
The National Manufacturers Association estimates that capital investment by US manufacturers will increase by 4.1% in the next 12 months. The global economy, with a non-inflationary potential growth rate of about 3%, grew by about 4% between October and December 2016 and January. . -March quarter of 2018. SMBC Nikko Securities expects global growth to remain in the top range of 3% for the quarter of April-June and beyond.
The Baltic Dry Index, benchmark for shipping prices, has almost doubled compared to the same period last year. Eizo Murakami, president of Kawasaki Kisen Kaisha, said goods traffic was recovering, thanks to strong shipments of iron ore to China.
Asia also gives a boost to the global economic expansion. Spending on semiconductors, in line with Chinese President Xi Jinping's desire to promote domestic production of computer chips, is booming. According to Semiconductor Equipment and Materials International, a trading group, the global chip-making equipment market is expected to grow 11% over the previous year in 2018. Growth in China is expected to be particularly strong, at 40% . India, the second most populous country in the world after China, recorded 7.7% GDP growth in the January-March quarter, ahead of China's 6.8% growth. This is the fastest growing country in the last seven quarters. According to them, China and India are expected to account for about 19% of global nominal GDP this year, according to the International Monetary Fund.
Trade friction between the United States and China is a major threat to global economic growth. Many experts say that the tariffs imposed up to here by the United States and China have had little effect on the real economy. US duties on Chinese goods account for only 1.5% of China's total exports. Many US products subject to Chinese retaliation tariffs also have substitutes. According to estimates by Nomura International Hong Kong, Chinese tariffs on American soybeans and beef, for example, will push up prices by 0.1 percentage point or less.
But the dispute can be prolonged. The US government announced on July 10 that it would impose duties on an additional $ 200 billion of Chinese imports, which would equate to about half of the goods China bought from China. This could seriously hurt the sentiment of businesses and investors.
Japanese companies that manufacture products in China and ship them to the United States could react by transferring production to the United States if tariffs remain high. But it would be cheaper to maintain their current supply chains if the trade dispute is settled quickly. Kuniharu Nakamura, chairman of the Japan Foreign Trade Council and the Sumitomo Corp. trading house, said the problem was uncertainty.
German automaker Daimler has reduced its earnings guidance for 2018. Daimler manufactures SUVs in the United States. In China, the Mizuho Research Institute estimates that if the conflict between the United States and China causes a 20% drop in bilateral trade, China's growth will slow by about 3 percentage points. In China, investment in infrastructure and retail sales growth also slowed. A drop in China's exports will also affect Asian companies, which have built supply chains to serve their Chinese counterparts.
The Composite Leading Indicators, published by the Organization for Economic Co-operation and Development, rose to 99.9 in May. Trade friction in China and worries about a slowdown in Europe. A reading above 100 points for an expansion in six months
The cooling of the European economy is partly a reflection of a return to the trend of a previously high growth and d & # 39; Bad weather early in the year. Fears of a prolonged trade war also weighed on growth figures. Trade concerns have contributed to the IMF's decision to reduce its growth forecast for the euro area to 2.2 percent this year. Holger Bingmann, president of the German Federation of Wholesale Trade, Foreign Trade and Services, said he hoped the cycle of retaliation would stop.
Rising crude oil prices and interest rate hikes by the US Federal Reserve are also a risk. Crude oil, more expensive, will weigh on buyers like India, which depends on imports for 80% of its oil. Higher interest rates in the United States, among other factors, have recently led to a sharp decline in the Argentine peso and the Turkish lira. Higher inflation could hurt the global economy.
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