Donald Trump wanted the best, you know the rest
While financial markets are preparing to digest the outcomes of the ECB meeting, Donald Trump’s failed promises are actively being discussed in the USA. During his presidential run, Donald Trump had promised to achieve the 3% growth of the U.S. economy, criticizing his predecessors who used to make unwise deals, resulting in the US foreign trade deficit of about $800 billion. “I will correct it!” Yes, he has corrected...
Even with the massive fiscal stimulus, the US GDP expanded by 2.9% in 2018, and the foreign trade deficit increased by its all-time high of $891.3 billion. The U.S. growth will hardly exceed the last year’s value. The U.S. president will hardly get back the levels of the foreign trade deficit, occurred at the time of Barack Obama, even if he strikes the deal with China. What are you going to promise before the election of 2020, Donald?
Democrat are criticizing the present president especially strong. “It is time for President Trump to acknowledge that his scattershot approach to trade policy is failing and explain how he intends to change course and reverse these record deficits.” However, it must be understood that the leading growth of import over (+7.5%) over export (+6.3%) has resulted from strong domestic demand amid the weak foreign demand. Relative to the GDP, the US foreign trade deficit has expanded from 2.8% to 3% which is much less than it was 10 years before the great recession beginning (6%).
Dynamics of the US trade balance
One of the reasons of the US foreign trade decline is the strong dollar. Trump has tried to press it down by means of verbal interventions a few times already. Another matter is that is rather hard to weaken the greenback when the entire world is challenged by a strong decline in GDP growth and the U.S. looks like a kind of safe haven. According to OECD, the US economy will expand by 2.6% in 2019, while European growth won’t be higher than 1%. So, the November forecast of 1.8% (!) has been revised down quite much. The OECD expects Italy to slide down into a recession, and German GDP won’t grow more than by 0.8%. According to it, strong growth of wages and expenditures won’t be sufficient to compensate the consequences of trade tensions and political uncertainty.
Does the ECB agree? Based on the information, obtained by Bloomberg, the Governing Council will revise the forecasts for GDP and inflation rate down until 2021. It will provide reasons for LTRO launch.
It doesn’t much encourage the euro buyers. The EUR/USD is walking on the thin ice and may drop below 1.125 any time; however, as the euro is being actively sold ahead the important event suggest that Mario Draghi’s dovish rhetoric has been already priced in forex. The ECB president has to surprise financial markets a lot to get the EUR/USD to go on falling down. Will he do it?
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