“Handelsblatt” is a daily newspaper published in German in which is really very good. It gives a comprehensive coverage of German and international business news and issues. On its website, it also has something called “Handelsblatt Today”, which gives some material in the English language. It had a piece recently about the euro, entitled “The euro must be fixed or dropped”. This is heavy on assertions and light on facts, apart from a reference to Alexander Hamilton and the federal takeover of state indebtedness at the formation of the United States of America.
“To survive in the long term, the euro zone needs at a minimum: the ability to tax and spend, combined with balanced-budget laws in member states; automatic stabilizers such as unemployment benefits for the whole currency area; and joint deposit insurance for banks”.
Well, the eurozone is a subset of the EU, and the EU has already some ability to tax and spend. Balanced-budget laws would be too restrictive, fetishizing a particular 12-month period: instead we have had the Stability and Growth Pact, excessive deficit procedures and so on. Unemployment benefits for the whole of the euro area are not necessarily an obvious requirement, because cultural and language differences have militated against a single labour market in the EU, and social services and public health systems are stronger than in the United States. Finally, although there is a long way to go, joint deposit insurance for banks is under consideration by the Council. But there are national schemes in place, and it’s not clear that the absence of a wider scheme is essential for the euro zone to “survive in the long-term”.
As usual, the IMF World Economic Outlook has been published in connection with the annual meeting of the World Bank and the IMF. The new report has a special emphasis on the impact of changes in trade policy, which as we know has seen a lot of action in the field of tariffs, with sanctions also playing a role. The revision of the NAFTA agreement, involving Canada, Mexico and the United States, is a further factor.
Behind the world economic survey is a huge amount of data and forecasting work, which encompasses broad economic and policy variables, giving a detailed picture in macroeconomic terms of each country as well as its various aggregates, up to the year 2023 in the case of the current survey. This data is of interest in its own right, but it is also interesting to compare the forecasts made at a detailed level this year with those made last year. Looking at the NAFTA countries, it seems that Mexico has had its expectations increased quite a lot. Compared with last year’s survey, Mexico’s GDP is almost 25% higher in all the years from 2018 to 2022. Canada has had its forecast increased by something over half a percent in the later years. Apart from Mexico, a big beneficiary of the revision of the projections has been the United States, where the US GDP in 2022 is 6.8 per cent higher than the estimate made last year. China’s increases on the other hand, are pretty small, with the GDP estimate for 2022 being revised upwards by 0.1 per cent
At world level the picture is a negative one. The IMF now thinks that world GDP growth in 2022 will be 3.58 per cent, while a year ago it was forecasting 3.76 per cent. Eurozone growth in 2022 is now forecast to be 1.45 per cent (previously 1.49 per cent).
Do these IMF forecasts imply that the US will be a slight beneficiary of its recent confrontational trade policies, since the US GDP forecast has been revised upward and world growth forecasts revised downwards? Well, perhaps, but macroeconomic forecasts embody a lot of things, such as structural change, technological change, resource constraints and so on, some of which the forecasters themselves may be not even be aware of. In other words, trade policies may not be the only factors at work.
And even if you do think that confrontational trade policies benefit the US, you should also ask yourself whether losses for the rest of the world won’t reduce the impulses for US growth farther down the line. And you should consider how much better it would be if the US and its trade partners were reducing barriers to trade (and investment) rather than increasing them.