Aug 02, 2018 (Euclid Infotech Ltd via COMTEX) -- Factory growth stuttered across the world in July, heightening concerns about the global economic outlook as an intensifying trade conflict between the United States and China sent shudders through trading partners.
Global economic activity remains healthy, but it has already passed its peak, according to economists polled by Reuters last month. They expect protectionist policies on trade, which show no signs of abating, to tap the brakes.
But slowing growth, wilting confidence, and trade war fears are not likely to deter major central banks from moving away from their ultra-loose monetary policies put in place in the wake of the 2008 financial crisis.
"Growth overall is still there, and while there are risks, it's holding up. The big picture of a trade war and protectionism is that it is a slow death - a death by a thousand paper cuts instead of anything sudden and shocking," said Richard Kelly, head of global strategy at TD Securities.
"Growth is still resilient, unemployment rates are low, inflation and wages are rising - that's the bigger picture and so they (central banks) have to keep tightening in the face of that," he said.
Last month, China and the United States imposed tit-for-tat tariffs on US$34 billion of each other's goods and another round of tariffs on US$16 billion is expected in August.
US President Donald Trump's administration, according to a source familiar with its plans, is poised to propose 25 per cent tariffs on a further US$200 billion of imports, up from an initial proposal of 10 per cent. Its threat of tariffs on the entire US$500 billion or so worth of goods imported from China still stands.
Beijing has pledged equal retaliation, although it only imports about US$130 billion of US goods.
World stocks slipped, bond yields edged up and the US dollar was little changed on Wednesday despite fears of an imminent escalation in the US-China tariff war.
Morgan Stanley analysts estimate an 81-basis-point impact on global growth in a scenario of 25 per cent tariff hikes across all imports from China and Europe, with US growth slowing by 1.0 percentage point and China's by 1.5 points.
Despite lethargic expansion rates, the European Central Bank last week reaffirmed plans to end its 2.6 trillion-euro stimulus programme this year and the Bank of England is widely expected to raise borrowing costs on Thursday .
On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.
China has been cutting bank reserve requirements to ease the pain of its campaign to reduced risk in the financial system for smaller companies and support growth. It is also planning more spending on infrastructure to cushion the impact of trade tensions.
Nevertheless, any fiscal and monetary measures would take time to filter through.
"China's economy is on track to slow this quarter and next," said Julian Evans-Pritchard, senior China economist at Capital Economics in Singapore.
In the US, the Federal Reserve kept interest rates unchanged on Wednesday but characterised the economy as strong, keeping the central bank on track to increase borrowing costs in September.
Source: Market Watch