US ECONOMICS

INTERNATIONAL TRADE

DoC. USITC. May 20, 2019. Department of Commerce Issues Limited Exemptions on Huawei Products

WASHINGTON – Today, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce announced that it would issue a Temporary General License (TGL) amending the Export Administration Regulations (EAR) to authorize specific, limited engagement in transactions involving the export, reexport, and transfer of items – subject to the EAR – to Huawei Technologies Co. Ltd. and its sixty-eight non-U.S. affiliates, which were added to the Bureau’s Entity List on May 16, 2019. This license will be effective on May 20, 2019 and lasts 90 days.

“The Temporary General License grants operators time to make other arrangements and the Department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services,” said Secretary of Commerce Wilbur Ross. “In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks.”

The Temporary General License authorizes certain activities necessary to the continued operations of existing networks and to support existing mobile services, including cybersecurity research critical to maintaining the integrity and reliability of existing and fully operational networks and equipment. Exporters will be required to maintain certifications, to be made available when requested by BIS, regarding their use of the TGL. With the exception of the transactions explicitly authorized by the TGL, any exports, reexports, or in country transfers of items subject to the EAR will continue to require a special license granted after a review by BIS under a presumption of denial. The Department will evaluate whether to extend the TGL beyond 90 days.

Huawei was added to the Entity List after the Department concluded that the company is engaged in activities that are contrary to U.S. national security or foreign policy interests, including alleged violations of the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA by providing prohibited financial services to Iran, and obstruction of justice in connection with the investigation of those alleged violations of U.S. sanctions, among other illicit activities.

The Bureau of Industry and Security’s mission is to advance U.S. national security and foreign policy objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership. BIS is committed to preventing U.S.-origin items from supporting Weapons of Mass Destruction (WMD) projects, terrorism, or destabilizing military modernization programs.

HUAWEI. REUTERS. 21 DE MAIO DE 2019. Huawei acusa EUA de intimidação e trabalha com Google para combater restrições
Por Foo Yun Chee

BRUXELAS (Reuters) - A Huawei afirmou nesta terça-feira que é vítima de intimidação dos Estados Unidos e disse que está trabalhando com o Google para combater restrições comerciais impostas por Washington na semana passada, disse um executivo sênior da fabricante chinesa de equipamentos de telecomunicações.

O governo dos EUA alegou que impôs as restrições por causa do que chama de envolvimento da Huawei em atividades contrárias à segurança nacional ou a interesses de política externa norte-americana.

Na segunda-feira, o governo dos EUA diminuiu temporariamente as restrições para minimizar o transtorno dos clientes do grupo chinês, um movimento rejeitado pelo fundador da Huawei, que disse que a empresa de tecnologia havia se preparado para a ação dos EUA.

A Reuters informou no domingo que o Google suspendeu os negócios com a Huawei, que exigem a transferência de hardware, software e serviços técnicos, exceto aqueles disponíveis publicamente via licenciamento de código aberto, citando uma fonte familiarizada com o assunto.

“Eles (o Google) têm motivação zero para nos bloquear. Estamos trabalhando em conjunto com o Google para descobrir como a Huawei pode lidar com a situação e o impacto da decisão do Departamento de Comércio dos EUA”, disse Abraham Liu, representante da Huawei para as instituições da UE.

Liu disse que a Huawei não culpa o Google pela decisão e que é cedo demais para dizer quais serão as consequências.

“A Huawei está se tornando a vítima de intimidação pela administração dos EUA. Isso não é apenas um ataque contra a Huawei. É um ataque à ordem liberal, baseada em regras”, acrescentou Liu.

THE WHITE HOUSE. 05/20/2019. America is finally writing the rules on trade

President Donald J. Trump delivered a major announcement just before the weekend about our two biggest trading partners. “We’ve just reached an agreement with Canada and Mexico, and we’ll be selling our product into those countries without the imposition of tariffs or major tariffs,” the President said.

The United States has strong relationships with both Canada and Mexico, President Trump said—but that shouldn't stop us from negotiating hard to protect American workers and jobs. Canada, for example, has been “charging us extremely high tariffs, as much as 285 percent or more, for our agricultural products, which is an absolute barrier,” he said.

In the past, American Presidents would turn the other cheek on bad trade deals to avoid confrontation or criticism from the mainstream press. But unlike his predecessors, President Trump is focused on results for our farmers and manufacturers—not on praise from the Beltway or global media. The same day he announced that Canada and Mexico would lift their retaliatory tariffs, the Administration also reported that it had successfully negotiated a deal to remove Japan’s longstanding restrictions on American beef exports.

All told, these agreements are great news for American farmers. They will continue to protect America’s crucial steel and aluminum industries, too.

Friday’s news coincided with a Proclamation from President Trump recognizing World Trade Week, 2019, in which he reflected on the trade principles he promised to the White House:

"The American people see through Chairman Nadler’s desperate ploy to distract from the President’s historically successful agenda and our booming economy. Neither the White House nor Attorney General Barr will comply with Chairman Nadler’s unlawful and reckless demands . . . The American people deserve a Congress that is focused on solving real problems like the crisis at the border, high prescription drug prices, our country’s crumbling infrastructure, and so much more."
After decades of politicians putting the global business class ahead of America’s industrial and agricultural heartland, working families finally heard the voice of a President that was willing to fight for them on January 20, 2017.

“From this moment on, it’s going to be America First,” President Trump said at his Inauguration. “Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families.”

VIDEO: https://twitter.com/WhiteHouse/status/1129492597406392321

USTR. 05/17/2019. United States Announces Deal with Canada and Mexico to Lift Retaliatory Tariffs

Washington, DC –Today, the United States announced an agreement with Canada and Mexico to remove the Section 232 tariffs for steel and aluminum imports from those countries and for the removal of all retaliatory tariffs imposed on American goods by those countries.  The agreement provides for aggressive monitoring and a mechanism to prevent surges in imports of steel and aluminum. If surges in imports of specific steel and aluminum products occur, the United States may re-impose Section 232 tariffs on those products. Any retaliation by Canada and Mexico would then be limited to steel and aluminum products. This agreement is great news for American farmers that have been subject to retaliatory tariffs from Canada and Mexico. At the same time, the Agreement will continue to protect America’s steel and aluminum industries.

FULL DOCUMENTS: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/united-states-announces-deal-canada-and

FINANCIAL SYSTEM

FED. May 20, 2019. Speech. Business Debt and Our Dynamic Financial System. Chair Jerome H. Powell. At "Mapping the Financial Frontier: What Does the Next Decade Hold?” 24th Annual Financial Markets Conference, sponsored by the Federal Reserve Bank of Atlanta, Amelia Island, Florida

It is a pleasure to be here at this important annual event sponsored and organized by the Federal Reserve Bank of Atlanta's Center for Financial Innovation and Stability. The risks in our financial system are constantly evolving. Fifteen years ago, everyone was talking about whether households were borrowing too much. Today everyone is talking about whether businesses are borrowing too much. This evening, I will focus on the implications of the increase in business debt over the past decade and review the steps the Federal Reserve and other agencies are taking to understand and limit the associated risks.

In public discussion of this issue, views seem to range from "This is a rerun of the subprime mortgage crisis" to "Nothing to worry about here." At the moment, the truth is likely somewhere in the middle. To preview my conclusions, as of now, business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm to households and businesses should conditions deteriorate. At the same time, the level of debt certainly could stress borrowers if the economy weakens. The Federal Reserve continues to assess the potential amplification of such stresses on borrowers to the broader economy through possible vulnerabilities in the financial system, and I currently see such risks as moderate.

Discussion

Many commentators have observed with a sense of déjà vu the buildup of risky business debt over the past few years. The acronyms have changed a bit—"CLOs" (collateralized loan obligations) instead of "CDOs" (collateralized debt obligations), for example—but once again, we see a category of debt that is growing faster than the income of the borrowers even as lenders loosen underwriting standards. Likewise, much of the borrowing is financed opaquely, outside the banking system. Many are asking whether these developments pose a new threat to financial stability.

At the Federal Reserve, we take this possibility seriously. The Fed and other regulators are using our supervisory tools and closely monitoring risks from the buildup of risky business debt. Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect. If financial and economic conditions were to deteriorate, overly indebted firms could well face severe strains. However, the parallels to the mortgage boom that led to the Global Financial Crisis are not fully convincing. Most importantly, the financial system today appears strong enough to handle potential business-sector losses, which was manifestly not the case a decade ago with subprime mortgages. And there are other differences: Increases in business borrowing are not outsized for such a long expansion, in contrast to the mortgage boom; business credit is not fueled by a dramatic asset price bubble, as mortgage debt was; and CLO structures are much sounder than the structures that were in use during the mortgage credit bubble.

Could the increase in business debt pose greater risks to the financial system than currently appreciated? My colleagues and I continually ask ourselves that question. We are also taking multiple steps to better understand and address the potential risks. In conjunction with other U.S. regulatory agencies, both domestically through the Financial Stability Oversight Council (FSOC) and internationally through the Financial Stability Board (FSB), we are monitoring developments, assessing unknowns, and working to develop a clearer picture. We are also using our supervisory tools to hold the banks we supervise to strong risk-management standards. And we are using our stress tests to ensure banks' resilience even in severely adverse business conditions.

The Rise of Business Leverage

Let's start with the basic facts. Many measures confirm that the business sector has significantly increased its borrowing as the economy has expanded over the past decade. Business debt relative to the size of the economy is at historic highs. Corporate debt relative to the book value of assets is at the upper end of its range over the past few decades (figure 1). And investment-grade corporate debt has shifted closer to the edge of speculative grade.

At the moment, the business sector is quite healthy overall. Business income is strong, reflecting healthy profit margins. And because interest rates are quite low by historical standards, the costs of servicing today's higher levels of debt remain low relative to business income (figure 2). Despite crosscurrents, the economy is showing continued growth, strong job creation, and rising wages, all in a context of muted inflation pressures.

But if a downturn were to arrive unexpectedly, some firms would face challenges. Not only is the volume of debt high, but recent growth has also been concentrated in the riskier forms of debt. Among investment-grade bonds, a near-record fraction is at the lowest rating—a phenomenon known as the "triple-B cliff." In a downturn, some of these borrowers could be downgraded into high-yield territory, which would require some investors to sell their holdings, thereby confronting traditional high-yield investors with a sudden influx of bonds.

There have also been sizable shifts within the non-investment-grade, or riskier, debt universe. Higher-risk businesses have traditionally funded themselves with a mix of high-yield bonds and leveraged loans. Over time, the balance between the two has swung back and forth because of investor demand, the interest rate environment, and other factors. In the past few years, leveraged loans have grown far more quickly (figure 3). In fact, while net new issuance of high-yield bonds in 2018 was close to nil, leveraged loans outstanding rose 20 percent and now stand at more than $1 trillion. So far this year, issuance of high-yield bonds and leveraged loans has been more balanced. In addition, underwriting standards have weakened. With leveraged loans, covenants intended to protect lenders may be an endangered species; more loans now feature high debt-to-earnings ratios; and the use of optimistic projections including "earnings add-backs" is becoming more common.

The rise in riskier business borrowing has been funded principally by nonbank lenders. Collateralized loan obligations are now the largest lenders, with about 62 percent of outstanding leveraged loans (figure 4). These lenders are actively managed securitization vehicles that mostly buy higher-risk assets like leveraged loans. CLOs, in turn, are funded by a slice of equity and layers of debt of varying seniority. After CLOs, mutual funds are the next-largest vehicle for holding leveraged loans, with about 20 percent of the market. These funds allow investors to redeem their shares daily, although the underlying loans take longer to sell. As a result, investors may react to financial stress by trying to redeem their shares before the funds have sold their most liquid assets. Widespread redemptions by investors, in turn, could lead to widespread price pressures, which could affect all holders of loans, including CLOs and those that hold CLOs.

Risks to Financial Stability: Using the Framework Deployed since the Crisis
As you can see, there are similarities to the subprime mortgage crisis. As with the mortgage boom, the business debt story begins with rapid growth of debt to new highs and a surge in lending to risky borrowers made possible by aggressive underwriting using securitization vehicles.

But there are also important differences. One difference is that financial authorities now closely monitor financial stability vulnerabilities on an ongoing basis, armed with lessons learned from the crisis. The Board of Governors meets at least four times a year to assess threats to the financial system and is constantly monitoring developments. We use a checklist of potential financial vulnerabilities that we have described elsewhere, most recently in the Financial Stability Report we published earlier this month.1 This approach gives us a way to organize and weigh the mass of facts, anecdotes, and speculation we confront as we monitor financial stability.

In assessing financial stability risks, we constantly consult our four-point checklist: borrowing by businesses and households, valuation pressures, leverage in the financial system, and funding risk. If households or businesses have borrowed too much, they will be forced to cut back spending and investing or even default if their incomes fall or the value of the collateral backing their loans declines. Valuation pressures give us a sense of overall risk appetite and, should investors lose that appetite, how far prices could fall. If lenders face defaulting borrowers and have too little loss-absorbing capacity, they risk insolvency. At best, they will cut back on lending to other borrowers, dragging the economy down. At worst, they will fail, which can lead to severe economic damage to households and businesses. Finally, when the financial system funds long-maturity assets with short-maturity liabilities, we risk a classic "fast burn" crisis—a bank run, or its equivalent involving investors and institutions outside traditional banking.2

In our framework, the story of the mid-2000s goes something like this: Amid a self-reinforcing cycle of house price gains and mortgage credit expansion, households borrowed (and lenders lent) far too much, and property prices rose far too high. Financial institutions of all shapes and sizes also borrowed too much. And the financial sector was highly susceptible to a run because it funded risky, long-maturity mortgages with extended chains of fragile and opaque financing structures that ultimately rested on short-maturity liabilities.

Let's compare this story with the current situation using our four-point checklist, beginning with borrowing by businesses and households. Business debt has grown faster than gross domestic product (GDP) for several years and today is high. But the growth in the ratio of business debt to GDP in the past decade is much less than the growth in household debt to GDP that we saw in the run-up to the Global Financial Crisis. Back then, household debt grew from 60 percent of GDP to 90 percent, or by half (figure 5). At its recent low, business debt was 65 percent of GDP. Now, even after rapid growth, it is still below 75 percent of GDP. Overall, the increase in business debt relative to the size of the economy is one-third the increase in household debt seen in the previous decade. Business debt rises in expansions. It is a steady upward plod in borrowing over the long expansion—not a rapid expansion—that has now brought business debt to GDP back to historic highs. Seen this way, the current situation looks typical of business cycles. The mortgage credit boom was, because of its magnitude and speed, far outside historical norms.3

As for household debt, we see that household debt-to-income ratios have steadily declined post-crisis. Moreover, a high and rising fraction of this debt is rated prime. All told, household debt burdens appear much more manageable.

Our second factor—valuation pressures—also points to moderate risks to financial stability. Valuations are high across several financial markets. Equity prices have recently reached new highs, and corporate bond and loan spreads are narrow. Both commercial and residential property prices have moved above their long-run relationship with rents, although price gains slowed substantially last year. All of these developments point to strong risk appetite—as might be expected given the strong economy. But there does not appear to be a feedback loop between borrowing and asset prices, as was the case in the run-up to the financial crisis. While borrowing by businesses has been strong, it is not fueling excessive prices or investment in a critical sector such as housing, whose collapse would undermine collateral values and lead to outsized losses. Instead, the increase in business borrowing has been broad based across sectors, including technology, oil and gas production, and manufacturing.

Regarding the third factor—leverage in the financial system—today banks at the core of the financial system are fundamentally stronger and more resilient. Our post-crisis regulatory framework is based on robust capital requirements backed by strong stress tests, resulting in much higher levels of capital in the banking system (figure 6). These stress tests are a way to estimate the direct and indirect effects of extremely bad macroeconomic and financial developments on our banking system. We publish the scenarios that describe the macro and financial developments every year by mid-February and release the test results in June. In the pre-crisis environment, supervisors focused more on the most likely outcomes, not on these tail risks. Since we began routine stress-testing in 2011, the scenarios we use have featured severe global recessions characterized by major stress in the corporate sector, where large numbers of firms default on their loans and bonds. As actual economic conditions have improved, the scenarios have gotten tougher. The most recent stress tests indicate that, even after the losses from the scenario, capital levels at the largest banks would remain above the levels those banks had before the crisis. Loss-absorbing capacity elsewhere in the financial system is also much improved. Leverage at broker-dealers is far below levels before the crisis and remains low relative to the norms of the past several decades. Insurers also appear well capitalized.

As for our fourth factor—funding risk—the susceptibility of the financial system to runs also appears low. In part because of the post-crisis regulatory regime, large banks hold substantial amounts of highly liquid assets and rely relatively little on short-term wholesale funding (figure 7). Money market funds hold much safer assets. And CLOs, which have facilitated the growth of leveraged loans, have stable funding: Investors commit funds for lengthy periods, so they cannot, through withdrawals, force CLOs to sell assets at distressed prices.

Addressing the Risks: Monitoring and Acting

Overall, vulnerabilities to financial stability from business debt and other factors do not appear elevated. We take the risks from business debt seriously but think that the financial system appears strong enough to handle potential losses. We also know that our dynamic financial system does not stand still. We can always learn more about financial markets, and we will always act to address emerging risks. Together with our domestic and international counterparts, we are monitoring developments in business debt markets, working to develop and share data on how these markets operate, studying ways to further strengthen the system, and working to ensure that banks are properly managing the business debt risks they have taken on.

Through the FSOC, the banking and market regulators coordinate our monitoring of financial conditions. In recent meetings, the FSOC has discussed leveraged lending in depth. We recognize that each regulator directly sees only a part of the larger picture, and we are working to stitch these parts together so we can collectively see that larger picture and the risks it holds. For example, the Securities and Exchange Commission is examining the potential for liquidity strains at mutual funds, and the Commodity Futures Trading Commission is working to understand the use of derivatives to hedge risks associated with leveraged loans.

What else are we watching for? Business debt growth has moderated somewhat since early 2018, but this might be just a pause. Another sharp increase in debt, unless supported by strong fundamentals, could increase vulnerabilities appreciably. Businesses, investors, and lenders need to focus on these vulnerabilities—as will the Federal Reserve.

In addition, regulators, investors, and market participants around the world would benefit greatly from more information on who is bearing the ultimate risk associated with CLOs. We know that the U.S. CLO market spans the globe, involving foreign banks and asset managers. But right now, we mainly know where the CLOs are not—only $90 billion of the roughly $700 billion in total CLOs are held by the largest U.S. banks. That is certainly good news for domestic banks, but in a downturn institutions anywhere could find themselves under pressure, especially those with inadequate loss-absorbing capacity or runnable short-term financing. The Federal Reserve is participating in international efforts, under the auspices of the FSB, to improve our knowledge of these key issues. Through the FSB, we are focused on determining the size of the global leveraged loan market and the holders of the loans as an important step toward a better understanding of the underlying risks.

Beyond monitoring markets and collecting new data, several supervisory efforts are also under way. To complement the quantitative analysis in our stress tests, our supervisors have been qualitatively assessing how well banks are managing the risks associated with leveraged lending. Through the Shared National Credit Program, which evaluates large syndicated loans, our supervisors are continuing to work with their counterparts at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ensure that banks are properly managing the risks of losses they face from participating in the leveraged lending market.

Conclusion

Let me wrap up with three thoughts. First, business debt is near record levels, and recent issuance has been concentrated in the riskiest segments. As a result, some businesses may come under severe financial strain if the economy deteriorates. A highly leveraged business sector could amplify any economic downturn as companies are forced to lay off workers and cut back on investments. Investors, financial institutions, and regulators need to focus on this risk today, while times are good.

Second, today business debt does not appear to present notable risks to financial stability. The debt-to-GDP ratio has moved up at a steady pace, in line with previous expansions and neither fueled by nor fueling an asset bubble. Moreover, banks and other financial institutions have sizable loss-absorbing buffers. The growth in business debt does not rely on short-term funding, and overall funding risk in the financial system is moderate.

Third, we cannot be satisfied with our current level of knowledge about these markets, particularly the vulnerability of financial institutions to potential losses and the possible strains on market liquidity and prices should investors exit investment vehicles holding leveraged loans. We are committed to better understanding the areas where our information is incomplete. This commitment includes coordination with other domestic and international agencies to understand who is participating in business lending and how their behavior could potentially amplify stress events.

References

• Adrian, Tobias, Daniel Covitz, and Nellie Liang (2015). "Financial Stability Monitoring," Annual Review of Financial Economics, vol. 7 (December), pp. 357–95.
• Basel Committee on Banking Supervision (2010). An Assessment of the Long-Term Economic Impact of Stronger Capital and Liquidity Requirements (PDF). Basel, Switzerland: BCBS, August.
• Board of Governors of the Federal Reserve System (2019). Financial Stability Report (PDF). Washington: Board of Governors, May.
• Borio, Claudio, and Philip Lowe (2002). "Asset Prices, Financial and Monetary Stability: Exploring the Nexus," (PDF). BIS Working Papers 114. Basel, Switzerland: Bank for International Settlements, July.
• Dokko, Jane, Brian M. Doyle, Michael T. Kiley, Jinill Kim, Shane Sherlund, Jae Sim, and Skander Van Den Heuvel (2011). "Monetary Policy and the Global Housing Bubble," Economic Policy, vol. 26 (April), pp. 233–83.
• Firestone, Simon, Amy Lorenc, and Ben Ranish (2017). "An Empirical Economic Assessment of the Costs and Benefits of Bank Capital in the US," (PDF) Finance and Economics Discussion Series 2017-034. Washington: Board of Governors of the Federal Reserve System, April.
• Jordà, Òscar, Moritz Schularick, and Alan M. Taylor (2016). "The Great Mortgaging: Housing Finance, Crises and Business Cycles," Economic Policy, vol. 31 (January), pp. 107–52.
• Kiley, Michael T. (2018). "What Macroeconomic Conditions Lead Financial Crises?" (PDF) Finance and Economics Discussion Series 2018-038. Washington: Board of Governors of the Federal Reserve System, June.
• Macroeconomic Assessment Group (2010). Assessing the Macroeconomic Impact of the Transition to Stronger Capital and Liquidity Requirements (final report) (PDF). Basel, Switzerland: Bank for International Settlements, December.
• Schularick, Moritz, and Alan M. Taylor (2012). "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008," American Economic Review, vol. 102 (April), pp. 1029–61.

NOTES

1. See Board of Governors (2019).
2. The Board's Financial Stability Report discusses the analytical framework. For a longer and more academic discussion, see Adrian, Covitz, and Liang (2015). For research on the role of credit, house prices, and other factors as indicators for potential financial instability, see Borio and Lowe (2002); Schularick and Taylor (2012); Jordà, Schularick, and Taylor (2016); and Kiley (2018). For research on the role of bank capital, see Basel Committee on Banking Supervision (2010); Macroeconomic Assessment Group (2010); and Firestone, Lorenc, and Ranish (2017).
3. For an analysis of the degree to which housing market developments in the 2000s appeared unrelated to economic fundamentals and references to related research, see Dokko and others (2011).

DOCUMENTO: https://www.federalreserve.gov/newsevents/speech/files/powell20190520a.pdf

________________

ORGANISMS

GLOBAL ECONOMY

OECD. 21/05/2019. OECD Economic Outlook May 2019. Trade uncertainty dragging down global growth

Global growth slowed sharply in late 2018 and is now stabilising at a moderate level. Trade conflicts and dangerous financial vulnerabilities threaten a renewed weakening of activity by undermining investment and confidence worldwide, the OECD’s latest Economic Outlook says. It expects the global economy to grow by 3.2% in 2019 and 3.4% in 2020.

Editorial: A fragile global economy needs urgent cooperative action. By Laurence Boone, OECD Chief Economist

A year ago, the OECD warned about how trade and policy uncertainties could significantly damage the world economy and further contribute to the growing divide between people. A year later, global momentum has weakened markedly and growth is set to remain subpar as trade tensions persist. Trade and investment have slowed sharply, especially in Europe and Asia. Business and consumer confidence have faltered, with manufacturing production contracting. In response, financial conditions have eased as central banks have moved towards more accommodative monetary stances, while fiscal policy has been providing stimulus in a handful of countries. At the same time, low unemployment and a slight pick-up in wages in the major economies continue to support household incomes and consumption. Overall, however, trade tensions are taking a toll and global growth is projected to slow to only 3.2% this year before edging up to 3.4% in 2020, well below the growth rates seen over the past three decades, or even in 2017-18.

While growth was synchronised eighteen months ago, divergence has emerged between sectors and countries depending on their exposure to trade tensions, the strength of fiscal responses and policy uncertainties. The manufacturing sector, where global value chains prevail, has been hit hard by tariffs and the associated uncertainty on the future of trade relationships, and is likely to stay weak. Business investment growth, also strongly linked to trade, is set to slow to a mere 1¾ per cent per year over 2019-20, from around 3½ per cent per year during 2017-18. However, services, less subject to trade jitters and where most job creation takes place, continue to hold up well. In parallel, growth has weakened in most advanced economies, especially those where trade and manufacturing play an important role, such as Germany and Japan, with GDP growth projected to be below 1% in both countries this year. In contrast, the United States has maintained its momentum thanks to sizeable, albeit waning, fiscal support. Divergence is also visible among emerging-market economies, with Argentina and Turkey struggling to recover from recession, while India and others are benefitting from easier financial conditions and in some instances fiscal or quasi-fiscal support.

Moreover, the global economy remains largely dependent on persistent policy support. Ten years after the financial crisis, with subdued inflation, central bank balance sheets remain at unprecedented levels, interest rates - short and long-term - are historically low, and government debt, except for a few cases, is much larger. With a few exceptions, emerging-market economies have kept large reserve buffers. In short, central banks have barely normalised the monetary policy stance and their support remains essential.

Overall, in spite of unprecedented policy support in the wake of the global financial crisis, the recovery has not been vigorous and lasting enough to translate into higher wages and better standards of living. Since 2010, real GDP per capita, an imperfect proxy for living standards, has increased by only 1.3% per annum in the median OECD country. Even though unemployment is at its lowest rate in nearly four decades, real wages are projected to grow by less than 1.5% per year in 2019-20, below the 2% pace in the decade prior to the crisis in the typical OECD economy. This means that, ten years after the crisis, standards of living have improved too slowly to significantly reduce inequalities, which had widened for the two decades running up to the crisis. For example, for median households in the large advanced economies, the pace of increase in real disposable income has fallen since the crisis, except in the United States.

The outlook remains weak and there are many downside risks that cast a dark shadow over the global economy and people’s well-being.

First, the mediocre growth outlook is conditional on no escalation of trade tensions, which cut across the Americas, Asia and Europe. Simulations in this Outlook’s first chapter show that renewed tensions between the United States and China could shave more than 0.6% from global GDP over two to three years.

Second, manufacturing and services do not work in isolation. While services have remained buoyant, providing a buffer, it is unlikely that they decouple for long from manufacturing. More than a third of manufacturing gross exports comes from services, and services contribute, directly or indirectly, to more than half of global exports. In addition, manufacturing crucially depends on investment, which is not only an engine of growth and employment today but also shapes tomorrow’s growth and living standards.

Third, China remains a source of concern, as the deployment of monetary, fiscal and quasi-fiscal tools not only has uncertain effects on activity, but might continue to fuel non-financial corporate debt, already at a record high level. We estimate that a 2-percentage point reduction in domestic demand growth in China, sustained for two years and combined with heightened uncertainty, could reduce global GDP by 1¾ per cent by the second year.

Finally, private sector debt is growing fast in major economies. The global stock of non-financial corporate bonds has almost doubled in real terms compared with 2008, at close to USD 13 trillion, and the quality of debt has been deteriorating, including a heightened stock of leveraged loans. A new bout of financial stress could erupt.

Looking ahead, trade tensions are not only hurting the short-term outlook but also medium-term prospects, calling for urgent government action to reinvigorate growth. The global economy was expanding in sync less than two years ago, but challenges to existing trade relationships and the multilateral rules-based trade system have now derailed global growth by raising uncertainty that is depressing investment and trade. The post-World War II process of globalisation driven by multilateral agreements that allowed ever-increasing trade openness is being challenged.

Against this backdrop, we strongly urge governments to use all the policy tools at their disposal. Primarily, based on a common diagnosis about trade issues, taking into account the interdependence of economies with production chains split across borders, it is imperative to reignite multilateral trade discussions. Then where demand is weak, in the euro area for example, rather than further relying on monetary policy, governments should take advantage of the low-interest rate environment to complement structural efforts with fiscal stimulus where public debt is relatively low. Such a combination can address the current weakness, enhance resilience and boost long-term growth in a sustainable way for the benefit of all. Policy priorities include investing in infrastructure, especially digital, transport and green energy, enhancing people’s skills, and more generally implementing policies that favour equal opportunities. For example, in the euro area, combining structural reforms that lift productivity growth by 0.2 percentage point per year for five years and a three-year fiscal stimulus of the order of 0.5% of GDP in countries with lower debt to finance public investment would not only result in higher growth in the short term, but raise GDP by around 1% in the longer term.

Reforms are also needed to reap the benefits of digitalisation for all. The special chapter of this Economic Outlook analyses the changes arising from digitalisation and the package of policies required to help digitalisation translate into stronger and more inclusive growth. Digital technologies change the way firms produce goods and services, innovate, and interact with other firms, workers, consumers, and governments. These technologies offer a vast potential to enhance firm productivity and ultimately living standards, but the gains have been disappointing so far. Labour productivity has slowed sharply across OECD countries over the past decades and only a small share of “superstar firms” are benefiting from digitalisation. Weak productivity growth has led to sluggish wage growth and routine tasks performed by low and medium-skilled workers are increasingly being automated. These trends have far-reaching implications for living standards and inclusiveness.

Governments and companies need to implement a range of policies to promote an efficient and inclusive digital transformation. Reaping the benefits of digitalisation requires changes in business practices, work organisation and skill composition that imply a vast reallocation of resources within and across firms and industries. These changes can take time and entail transitory adjustment costs that can be painful for vulnerable groups. A range of reforms are thus needed: education to enhance people’s cognitive skills; training to raise technical and managerial skills; business access to funding capacities for investment in intangible assets and R&D, especially in equity; as well as evolving competition policy to adapt the regulatory environment to changes to business models created by the digital transformation and ensure efficient resource reallocation. If governments and companies take action to address these shortfalls, adoption of digital technologies and gains from digitalisation may finally be up to our expectations.

Over the past year, some downside risks to global growth have materialised as trade and policy uncertainty have weakened business and household confidence. Growth is set to remain subpar as trade tensions persist, while contributing to the divide between people. Governments can and must act together to restore growth that will be sustainable and benefit all.

FULL DOCUMENT: https://www.oecd-ilibrary.org/sites/b2e897b0-en/index.html?itemId=/content/publication/b2e897b0-en

BRAZIL

The recovery has recently slowed despite favourable financial conditions but growth is projected to pick up to 2¼ per cent in 2020. An ambitious pension reform proposal to ensure long-term fiscal sustainability has been submitted to Congress, but uncertainty about the implementation of the reform remains. If this uncertainty dissipates, domestic demand is projected to accelerate and unemployment to decline. Given ample spare capacity, inflation is expected to remain below target.

Monetary policy will remain accommodative, supporting household spending. Without major efforts to contain expenditure growth, the sustainability of fiscal accounts remains at risk, especially but not only due to rising pension spending. Rebalancing social spending towards low-income households would reduce inequalities. Achieving stronger growth will require further reform efforts to strengthen productivity, including closer integration into the global economy and lower administrative barriers to market entry.

The expansion has shifted into a lower gear

The economy continues to recover, but the pace has ebbed, especially for investment, as all eyes are set on the ability of the new administration to deliver reforms. Business confidence has started to recede against the background of uncertainty around the reform process. Growth in the services and primary sectors has compensated for a contraction in industrial output and the prospects for agricultural output remain favourable. Inflation and core inflation are below target, despite a minor uptick in recent months, and interest rates have remained low. This, together with moderate wage growth, is supporting private consumption, although unemployment has yet to improve. In particular, the composition of jobs created has been of low quality so far, with a disproportionate number of jobs created in the informal sector. Fiscal indicators continue to deteriorate.

GDP, unemployment rate and short-term indicators: Brazil

Brazil: Demand, output and prices

Pension expenditure and inflation: Brazil

Improving the quality of public finances is crucial for restoring confidence

Low confidence is holding back a stronger recovery in domestic demand, and confidence will improve only with tangible progress on reforms that ensure fiscal sustainability. Gross public debt remains high at 77% of GDP and the primary deficit of 1.5% of GDP falls short of the estimated 2% surplus required to stabilise public debt. The expenditure rule introduced in 2016 will not be met in 2020 without implementing decisive action to reduce the growth of public spending.

While some progress has been made on other expenditure items, the deterioration in the fiscal accounts continues to be driven by rising social security expenditures, most notably old-age pensions. Therefore, pension reform, along the lines of the proposal submitted to congress, remains the key priority to ensure debt sustainability, restore investor confidence and avoid higher financing costs.

The reform proposal would also improve the redistributive impact of pensions and allow for a recalibration of social spending towards more effective social benefits. Due to an indexation to the minimum wage, rising pension benefits have benefitted mostly middle-class households, leaving fewer resources for well-targeted social benefits to fight inequality and poverty, which is concentrated among children and youth. Raising income thresholds in the conditional cash transfer programme Bolsa Família, which costs only 0.5% of GDP, would broaden eligibility and raise benefit levels. This would lift more people out of poverty and strengthen incentives for school attendance and medical check-ups, thus reducing inequalities with respect to education and health.

Reducing the public sector’s high wage bill is also a key priority, as salary levels exceed private sector pay in many areas, particularly at the entry level. However, the recently decided rise in military remunerations is likely to make the case for savings in other parts of the administration more difficult. Efforts to reduce tax expenditures and credit subsidies for private-sector enterprises, which have created fertile grounds for corruption without generating clear benefits for either well-being or productivity, should continue.

With inflation projected to be below target in 2019 and 2020, monetary tightening now appears unlikely before 2020 and financial conditions are projected to remain favourable. Credit has been growing for households, but continues to decline for the corporate sector. Current reform plans to strengthen competition in the financial sector are a promising step to reduce borrowing costs.

Productivity growth will be the main engine of growth in the longer term. Strengthening it will require more competition in many sectors to allow labour and capital to move to activities with strong potential. Closer integration into the global economy would raise efficiency by exposing more firms to foreign competition and improving access to lower cost intermediate and capital goods. Efficiency would also be enhanced by reducing domestic barriers to entry and implementing policies to reduce costs, such as easing tax compliance or improving contract enforcement. A substantial overhaul of the fragmented indirect tax system, with a view towards a unified value added tax, could raise the competitiveness of firms across the country.

Growth is projected to gain momentum

On the assumption of a successfully legislated and implemented pension reform and the associated confidence improvement, growth is projected to increase during 2019 and 2020 and unemployment to decline, including through the creation of more jobs in the formal sector. Low inflation, stronger wage growth and falling unemployment will support private consumption and investment will rise visibly during 2019 as the reforms advance. Structural reforms beyond pensions will support stronger growth momentum in 2020.

Risks are mainly related to the implementation of reforms. The fragmented political landscape, and at times the challenging relationship between different branches of government, is making it difficult to build political consensus for key reforms. If congress fails to approve the ambitious reform agenda of the executive, the expenditure rule would be violated as early as 2020, likely resulting in higher financing costs, lower growth outcomes and possibly a return into recession. On the other hand, a stronger reform momentum stretching beyond the urgently needed pension reform could improve the business climate significantly and lead to stronger growth, including exports. The possibility of rising trade tensions also bears risks for Brazil, as China and the United States are Brazil’s two major trading partners.

FULL DOCUMENT: https://www.oecd-ilibrary.org/sites/b2e897b0-en/1/2/3/5/index.html?itemId=/content/publication/b2e897b0-en&_csp_=d2743ede274dd564946a04fc1f43d5dc&itemIGO=oecd&itemContentType=book

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ECONOMIA BRASILEIRA / BRAZIL ECONOMICS

VENEZUELA

VENEZUELA. ONU. ACNUR. REUTERS. 21 DE MAIO DE 2019. Venezuelanos que escapam da crise devem ser tratados como refugiados, diz Acnur

GENEBRA (Reuters) - Os venezuelanos que fogem da grave crise no país merecem proteção como refugiados, afirmou a agência de refugiados da Organização das Nações Unidas (ONU) nesta terça-feira, pedindo que outros países não os deportem.

Cerca de 3,7 milhões de pessoas deixaram a Venezuela, a maioria desde 2015, à medida que a economia implodiu, gerando blecautes, fome e protestos pelas ruas, que provocaram mortes e ondas de violência.

O índice de venezuelanos deixando o país diariamente permanece em torno de 3 a 5 mil, segundo o Alto Comissariado das Nações Unidas para os Refugiados (Acnur), que atualizou as orientações para lidar com o êxodo.

“O Acnur... agora considera que a maioria dos que deixam o país precisa de proteção internacional a refugiados”, disse a porta-voz do Acnur, Liz Throssell, em uma coletiva de imprensa.

“É extremamente importante que, dada a situação na Venezuela, não haja deportações, expulsões ou retornos forçados”, acrescentou.

O Acnur registrou que têm havido algumas deportações nas ilhas do Caribe, incluindo Trinidad e Tobago.

Apenas 460 mil venezuelanos buscaram asilo formal até o fim de 2018, principalmente no Peru, nos Estados Unidos, no Brasil e na Espanha, enquanto outros têm acordos legais de permanência em países como Colômbia, Chile e Equador, informou a agência.

O Fundo das Nações Unidas para a Infância (Unicef) reportou que condições deteriorantes na Venezuela deixaram crianças em condições de vulnerabilidade, com acesso limitado à saúde, à educação à proteção e a serviços nutricionais.

A agência ajudou cerca de 190 mil crianças com programas nutricionais, mas não pode fazer tudo que gostaria na Venezuela, disse o porta-voz do Unicef, Christophe Boulierac.

Dezenas de países ao redor do mundo reconhecem o líder da oposição, Juan Guaidó, como presidente interino da Venezuela, alegando que o presidente Nicolás Maduro fraudou a eleição de 2018 e se comporta como ditador. No entanto, Guaidó não conseguiu depor Maduro, que ainda tem apoio militar.

Reportagem de Stephanie Nebehay

VENEZUELA. REUTERS. 20 DE MAIO DE 2019. Maduro propõe antecipar eleição para Congresso liderado pela oposição

CARACAS (Reuters) - O presidente da Venezuela, Nicolás Maduro, propôs nesta segunda-feira antecipar as eleições para a Assembleia Nacional, que é comandada pela oposição.

A oposição conquistou a maioria na Casa legislativa em uma eleição no final de 2015, e as próximas eleições parlamentares estão atualmente agendadas para 2020.

Reportagem de Redação Caracas e Luc Cohen

INDÚSTRIA

FGV. IBRE. 21/05/19. Sondagens e Índices de Confiança. Prévia da Sondagem da Indústria. Prévia da Sondagem da Indústria sinaliza queda em maio

 A prévia da Sondagem da Indústria de maio de 2019 sinaliza queda de 1,6 ponto do Índice de Confiança da Indústria (ICI) em relação ao número final de abril.

O recuo do índice seria determinado tanto pela piora na percepção dos empresários em relação à situação atual quanto pelas perspectivas futuras dos negócios. O Índice da Situação Atual (ISA) cairia 0,4 ponto, para 98,1 pontos, enquanto o Índice de Expectativas (IE) diminuiria 2,9 pontos, para 94,5 pontos .

O resultado preliminar de maio sinaliza alta de 0,2 ponto percentual do Nível de Utilização da Capacidade Instalada da Indústria (NUCI), para 74,7%, retornando ao nível de março de 2019.

Para a prévia de maio de 2019 foram consultadas 785 empresas entre os dias 02 e 17 deste mês.

DOCUMENTO: https://portalibre.fgv.br/navegacao-superior/noticias/noticias-1523.htm

COMÉRCIO INTERNACIONAL

EUA. CHINA. REUTERS. 21 DE MAIO DE 2019. China rejeita afirmação de Trump de que tarifas dos EUA fazem empresas saírem do país

PEQUIM (Reuters) - Os investidores estrangeiros continuam entusiasmados com a China, afirmou o Ministério das Relações Exteriores nesta terça-feira, depois da afirmação do presidente dos Estados Unidos, Donald Trump, de que suas tarifas estão fazendo as empresas transferirem a produção da segunda maior economia do mundo.

Trump afirmou em entrevista divulgada no domingo que suas tarifas sobre os produtos chineses estão levando as empresas a transferirem sua produção da China para o Vietnã e outros países asiáticos, e acrescentou que qualquer acordo para encerrar a guerra comercial com a China não pode ser igualitário.

Nenhuma nova negociação comercial entre autoridades chinesas e norte-americanas foi marcada desde que a última rodada terminou em 10 de maio —mesmo dia em que Trump elevou de 10% para 25% as tarifas sobre 200 bilhões de dólares em produtos chineses.

Trump adotou a medida depois que a China buscou mudanças em um acordo que autoridades dos EUA dizem que já tinha sido fechado.

Desde então, a China adotou um tom mais duro em sua retórica, sugerindo que uma retomada das negociações para acabar com 10 meses de guerra comercial não deve acontecer em breve.

O porta-voz do Ministério das Relações Exteriores da China, Lu Kang, respondendo a uma pergunta sobre a afirmação de Trump, disse que os investidores estrangeiros “ainda estão otimistas” quanto à China.

“Embora ao longo do último ano ou mais os EUA tenham continuado a ameaçar os produtos chineses com tarifas adicionais, todos podem ver que o entusiasmo de investidores estrangeiros na China permanece alto”, disse Lu.

Lu listou empresas, incluindo Tesla, BASF e BMW, dizendo que todas aumentaram seu investimento na China. Ele acrescentou que o país continuará a melhorar as condições de negócios e investimento para empresas estrangeiras.

Mas empresas estrangeiras estão cada vez mais cautelosas com o que dizem ser reformas econômicas fragmentadas na China.

A comunidade empresarial dos EUA na China defende nos últimos anos uma linha mais dura em relação ao que vê como políticas comerciais chinesas discriminatórias.

Reportagem de Ben Blanchard

EUA. CHINA. REUTERS. 21 DE MAIO DE 2019. EUA e China precisam mudar curso de disputa comercial para ajudar economia, diz OCDE
Por Leigh Thomas

PARIS (Reuters) - O crescimento econômico da China e dos Estados Unidos pode ser 0,2% a 0,3% menor em 2021 e 2022 se os dois países não voltarem atrás com as tarifas em sua disputa comercial, que vem prejudicando as perspectivas econômicas globais, disse a OCDE nesta terça-feira.

O presidente dos EUA, Donald Trump, elevou as tarifas sobre 200 bilhões de dólares em importações chinesas de 10% para 25%, enquanto Pequim disse que vai reagir elevando as taxas sobre 60 bilhões de dólares em produtos norte-americanos.

A economia global deve crescer apenas 3,2% este ano, já que o crescimento dos fluxos de comércio caiu quase pela metade em 2019, para apenas 2,1%, disse a Organização para Cooperação e Desenvolvimento Econômico (OCDE) em sua perspectiva econômica bianual.

Esse seria o ritmo mais lento do crescimento econômico global desde 2016 e ligeiramente abaixo da última previsão da organização com sede em Paris em março, de um crescimento de 3,3%.

A economia mundial deve se sair um pouco melhor no próximo ano, com uma taxa de crescimento de 3,4%, mas somente se os Estados Unidos e a China recuarem dos aumentos de tarifas anunciados neste mês.

A OCDE disse que o crescimento na China e nos Estados Unidos poder ser de 0,2% a 0,3% menor em média até 2021 e 2022 se as duas nações não mudarem o curso na disputa comercial.

Sem levar em conta a última rodada de aumento de tarifas, a OCDE previu que os Estados Unidos ultrapassarão outras grandes economias desenvolvidas com um crescimento de 2,8% este ano, acima dos 2,6% projetados pela organização em março.

A maior economia do mundo deve sofrer uma desaceleração para 2,3% no ano que vem, mesmo que os novos aumentos tarifários não tenham sido considerados.

A China, que não é um país da OCDE, tem procurado estimular sua economia, mas o crescimento ainda deve cair de 6,2% este ano para 6,0% em 2020, a menor taxa em 30 anos para a segunda maior economia do mundo.

Investidores globais estão observando atentamente para ver quanto mais apoio Pequim vai injetar para sustentar o crescimento depois que a China já afrouxou a política monetária, cortou impostos e permitiu que governos locais emitissem títulos especiais para financiar projetos de infraestrutura.

A economia dependente das exportações do Japão está sofrendo com a queda nos fluxos comerciais, com crescimento esperado de apenas 0,7% em 2019 e 0,6% em 2020, abaixo das previsões de março da OCDE de 0,8% e 0,7%, respectivamente.

A zona do euro também está pagando um preço alto pela desaceleração do comércio global, com seu crescimento visto este ano em 1,2% antes de subir para 1,4%. A previsão é ligeiramente melhor do que os 1,0% e 1,2% esperados em março, já que a crise da Itália se mostra um pouco menos severa do que se esperava anteriormente.

Enquanto isso, a OCDE elevou a previsão de crescimento do Reino Unido para 1,2% este ano, ante 0,8% anteriormente, já que a perspectiva de saída britânica da União Europeia foi adiada. O crescimento do Reino Unido deverá cair para 1,0%, uma projeção marginalmente melhor do que os 0,9% esperados em março.

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LGCJ.: