Advertisement
Advertisement
China economy
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
The governor of China’s central bank Yi Gang named Brexit and the US Federal Reserve’s policy as the two biggest risks to global growth in the year ahead. Photo: Xinhua

China’s top banker names US Fed policy and Brexit as biggest risks to global growth

  • Central Bank governor Yi Gang predicts a slowdown and widening differences in regional growth
  • Speech delivered at high-level meeting of German and Chinese policymakers in Beijing

The trade war was not mentioned by China’s central bank governor on Friday when he gave his picks for the biggest risks to the global economy this year.

Instead, Yi Gang, speaking at the second China-Germany High Level Financial Dialogue in Beijing, nominated the US Federal Reserve’s policy trajectory and Britain’s plan to leave the European Union.

Yi also predicted a slowdown in the global economy in 2019, with widening differences in regional growth performance.

“There are a few major uncertainties [in the global economy] and the first one is that the path for US Federal Reserve interest rate increases has entered an uncertain period,” he told a gathering of bankers and policymakers from the two countries.

“Expectations on [future Fed policy moves] have changed quite significantly compared to previous views.”

Yi Gang, governor of the People's Bank of China, named US Federal Reserve policy and Brexit as the main risks to global growth in a speech to German and Chinese bankers and policymakers in Beijing on Friday. Photo: Bloomberg

The outlook for Brexit was also a major uncertainty for global growth, Yi said, before journalists were escorted out of the room. It is unknown whether the trade war was mentioned in the closed-door portion of his speech.

The dialogue was co-chaired by German Finance Minister Olaf Scholz and Chinese Vice-Premier Liu He, and concluded a two days of meetings aimed at strengthening financial cooperation between the two countries.

Liu, who will fly to Washington for trade talks at the end of this month, also spoke at the forum but did not mention the trade war or trade disputes either.

The Fed’s rate course has become more uncertain in the past month, due to worries about the outlook for the economy both in the United States and globally.

Federal Reserve rates, China’s balancing act and Europe’s sluggishness all point to the global growth scare getting scarier in 2019

After its rate rise in mid-December, Fed policymakers projected a need to raise rates two more times in 2019.

That contrasted sharply with the nervous view of financial markets, which priced in the next Fed rate move as a cut, not a hike, given the growing concerns of a possible global recession later this year or next.

In the past two weeks, Fed chairman Jay Powell has changed the tone of his public remarks to make it clear that the central bank was listening to market concerns.

He said Fed policymakers would be “patient” and “flexible” in their approach to policy in the period ahead, thanks to the high degree of uncertainty surrounding the US-China trade war and Brexit.

Jerome Powell, chairman of the US Federal Reserve, has changed his tone in recent weeks to make clear the central bank is listening to market concerns. Photo: Bloomberg

Trade war worries persist, despite apparent progress by US and Chinese negotiators at their meeting in Beijing 10 days ago, and confirmation that Liu He, China’s top trade negotiator, will travel to Washington on January 30-31 to continue discussions.

The Wall Street Journal reported on Thursday that some officials in the Trump administration, including Treasury Secretary Steven Mnuchin, want to scale back existing tariffs as a good-faith gesture to prompt the Chinese to offer more concessions and so bring a quick end to the trade conflict.

Other “trade hawks” in the administration argue China has not addressed the thorniest issues – government subsidies to state-owned enterprises – and so tariff pressure should not be relaxed.

Chinese Vice-Premier Liu He to hold trade talks in Washington on January 30-31

In contrast to the trade war, efforts to agree on a transition agreement for Brexit have gone backwards.

British Prime Minister Theresa May’s transition plan was roundly defeated in a House of Commons vote earlier this week – the worst defeat for a ruling party in history – and she barely survived a vote of no confidence in her government.

May must now try to renegotiate the transition deal with reluctant European Union officials, or face the prospect of a “no deal” Brexit.

That is the potential outcome financial markets fear. Without a transition deal, customs barriers and new export/import taxes would severely disrupt supply chains in both Britain and the EU.

Some analysts worry it could prompt a recession in Europe, dragging the world economy down with it, particularly if there is no resolution in the US-China trade war.

May is expected to request a postponement of her country’s exit from the EU, from the March 29 deadline until sometime in the summer, to give her government more time to negotiate.

This article appeared in the South China Morning Post print edition as: Fed policy, Brexit the central bank chief’s big fears
Post