2.09pm GMT14:09 Lagarde: Global factors are hurting the eurozone European Central Bank President Christine Lagarde. Photograph: Xinhua/REX/Shutterstock Newsflash: Christine Lagarde, the eurozone’s new top central banker, has warned that Europe’s economy remains weak due to ‘global factors’. She doesn’t spell it out, but one obvious global factor is the trade conflicts triggered by the US…
Lagarde: Global factors are hurting the eurozone
Newsflash: Christine Lagarde, the eurozone’s new top central banker, has warned that Europe’s economy remains weak due to ‘global factors’.
She doesn’t spell it out, but one obvious global factor is the trade conflicts triggered by the US in recent years, both with China and Europe, and now Brazil and Argentina too.
In testimony to the European Parliament, the ECB’s president says:
Euro area growth remains weak, with gross domestic product growing by only 0.2%, quarter on quarter, in the third quarter of 2019. This weakness has been mainly due to global factors.
The world economy outlook remains sluggish and uncertain. This lowers demand for euro area goods and services and also affects business sentiment and investment.
As the sector most directly exposed to these global developments, the manufacturing industry has been suffering the most. We are also seeing signs of spillovers to other parts of the economy, with recent survey data pointing to some moderation in the services sector.
Lagarde adds that the ECB will do what it can to protect the eurozone economy and help it grow, citing the new stimulus measures launched this summer.
Lagarde’s session hasn’t started yet, but will be streamed live, here.
Shares in US steel makers are up in pre-market trading, as they should benefit from tariffs on foreign rivals.
However, rising prices are going to hurt US companies who actually buy steel and aluminium.
Shares in Brazilian steel-makers are falling as trading gets underway in São Paulo.
São Paulo-based Gerdau are the biggest faller, down 1.5%, followed by Usiminas, which dropped over 1%. Both companies run major steel mills in Brazil, and could suffer once new tariffs are imposed at the US border.
Argentina’s government is also planning to negotiate with the US government, a spokesperson says.
Brazil’s President Jair Bolsonaro has responded.
Bolsonaro says he could speak directly with President Donald Trump about the decision to restore tariffs on steel and aluminium imports from Brazil and Argentina, Reuters reports.
Bolsonaro added that he will discuss Trump’s declaration with Economy Minister Paulo Guedes (whose comments about Brazil’s currency being free to float may have contributed to Trump’s decision….).
This decision is also a blow to Jair Bolsonaro, Brazil’s right-wing president.
He won power last year with a campaign based on popularism, conservative policies and divisive attacks on minority groups, pushed heavily through social media.
Trump and Bolsonaro had appeared to be close allies, but this hasn’t provided protection from today’s tariffs.
Donald Trump has clearly been riled by the slump in the Brazilian real and the Argentinian peso.
The real hit a record low last week, at more than 4.25 to the dollar. Interest rate cuts, and weak economic data, had pulled the real down in recent months. But its latest tumble came after Economy Minister Paulo Guedes said he wasn’t concerned about the exchange rate.
Guedes told reporters:
“We have a floating currency, so it floats.” .
Or sinks, perhaps….
The Argentinian peso hit its own record lows earlier this year, slumping 30% after the left-wing opposition surprisingly won a presidential primary, ahead of their return to power five weeks ago.
It would be a mistake, though, to assume either country is jubilant about a weak currency. Both Argentina and Brazil’s central banks have intervened in the markets, selling US dollars to prop up their ailing currencies.
Donald Trump has also defended his trade war in a further tweet, which calls for a double fact-check!
1) Stocks are indeed higher, but that’s not due to the trade war. The S&P 500 index has gained 18% since March 2018, with the Dow up 14% and the Nasdaq gaining 21%. But America’s various ongoing trade disputes have, if anything, dampened investor optimism. Instead, US interest rate cuts, Trump’s tax reforms, and share buybacks have all played a more important role.
2) Tariffs are paid by US companies when they import goods. They either pass them onto consumers (higher prices), absorb the cost (lower profits), or try to make their supplier pick up the tab (by insisting on paying less).
In practice, all three things happen – but only the last one helps the US economy.
Brazil is the third-largest exporter of steel to America, points out Bloomberg’s Michael McDonough, so these tariffs could have an impact.
President Trump’s decision is a blow to both Argentina and Brazil, who had previously persuaded the White House not to impose metal tariffs.
Back in May 2018, both countries secured “permanent exemptions” from the levies, which are 25% on steel and 10% on aluminium.
Those tariffs were meant to protect American steel and aluminium factories from overseas competition, especially from countries which Trump accused of weakening their currencies to get an unfair advantage.