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World Economic News Roundup: Issue 3, September 2018

An update on some of the most important news stories in the world economy over the last few days.

* Brexit Negotiations Falter …. Could A Canadian Style Deal Be Next?

The Brexit negotiations seem to be deadlocked yet again after last week’s EU summit meeting in Salzburg. In brief, the EU position seems to be that Britain’s proposals ‘won’t work’, while Prime Minister Theresa May challenged the EU to come up with its own ideas.

A recent report in The Daily Telegraph says that some members of the UK cabinet now favour a Canadian style trade deal with the EU. The Canada-EU trade deal or CETA will, after a seven year run-in period, permit free trade in a wide range of goods between the EU and Canada. However it will not encompass the free movement of people or trade in services, both of which are fundamental to the UK’s future relationship with the EU.

The EU is expecting, perhaps optimistically, to agree the outline terms of a Brexit deal at the European Council in October and then to call an extraordinary meeting of members to finalise it in November.

* US-China Trade War Intensifies …. Global Manufacturers Make Moves

The US-China trade war developed further this week as the latest round of new tariffs took effect. The new US tariffs, initially introduced at 10%, are scheduled to rise to 25% in 2019. China retaliated with further tariffs on US goods at rates of 5-10%.

Significantly, while previous tariffs have been mainly on industrial products, the latest tariffs have started to impact consumer goods with products including foodstuffs and consumer electronics affected.

Also significant are the implications this has for the global economy and the global workforce: There are reports that some Asian manufacturers including LG Electronics, Toshiba and Mitsubishi Electric are planning for, or considering, moving production out of China.

* Dollar Gains …. US Interest Rate Rise Expected

The US dollar showed an upswing in value at the start of the week after a month of gradual decline. Commentators suggest reasons for the upswing include the latest US-China trade tariffs, and the expectations of investors that share prices will be affected by this. In addition, the US Federal Reserve is expected to raise US Interest rates by 0.25% when it meets this week – and some analysts predict a further 1% raise in US interest rates over the course of 2019.

* Prospects For World Oil Prices …. $100 Possible ?

The world oil price could top $100 a barrel in early 2019, according to the latest forecasts from commodity merchants Trafigura and Mercuria.

The current price, around $80 a barrel, is already the highest since 2014 – despite many predictions earlier this year that it would decline. Reasons for the upward trend in prices include the US sanctions against Iran, which are set to start impacting the country’s oil exports in November. There has also been lack of commitment from both Russia and OPEC to raise their production to offset that lost from Iran – despite a demand from Donald Trump that OPEC lowers prices by raising production.

The $100 forecast, however, exceeds most forecasters’ predictions. J.P. Morgan, for example, has forecast they could peak at $90 this year.

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