Week In Review
The U.S. economy grew at a 4.1% annualized rate in the second quarter, which was a sharp acceleration from the 2.2% rate in the first quarter. A sharp increase in consumer spending, steady fixed investment and a significant increase in exports drove the pickup in the second quarter.
This was a very strong GDP result. The key questions will be whether or not the increase in consumption is sustainable and the extent to which increased trade tensions weigh on growth in the coming quarters.
The Chinese government and the People’s Bank of China (PBOC) implemented fiscal and monetary policy measures aimed at stimulating growth in order to help offset the impact of the trade conflict with the U.S. The yuan has slid in recent weeks, but the PBOC has stated that they do not want to see its value relative to other currencies fall significantly from current levels.
These policy measures indicate that the Chinese government is planning on a sustained trade conflict with the U.S. and is concerned about the impact of that conflict on growth. These measures will work against President Xi’s efforts to reduce leverage and debt growth in the Chinese economy.
Trump and Juncker announced an agreement to hold off on implementation of tariffs on European autos imported into the U.S. Juncker pledged that the EU would buy more U.S. soybeans and liquefied natural gas (LNG) and that the two sides would work to reduce trade restrictions on non-auto industrial goods.
It is very encouraging that the two sides are stepping back from an escalation in the current trade conflict. Hopefully the discussions on industrial goods will lead to a significant reduction in the restrictions on transatlantic trade flows.