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A possible recession in the US economy has led to a change in the language and direction of the monetary policy of major central banks around the world. The signals emitted by the global economy produced a risk scenario that was reflected in the purchase of safe-haven assets.
After registering USD 20.1 billion in 2017, the current account deficit increased to USD 22.0 billion in 2018.
This week’s risk sentiment was eroded by today’s announcement from China of retaliatory tariffs on another $75b worth of U.S. goods. Global stocks recovered from the drop of last week as strong U.S. retail earnings and hopes of a more stable government in Italy outweighed the escalation of trade tensions.
Yesterday’s risk appetite was hurt by the volatility in the financial markets amid concerns over global economic weakness and renewed U.S.-China trade tensions. All eyes will be on Powell’s speech tomorrow at the Jackson Hole gathering as markets look for hints on monetary policy.
Despite the reduced fiscal space, we consider it desirable to boost private consumption and, by the same token, aggregate demand by reducing the target for the 2019 primary balance to 0.5% of GDP.