MOMR September 2017
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World Economy

14

OPEC Monthly Oil Market Report – September 2017

Graph 3 - 1: Manufacturing and non-manufacturing ISM indices

The

GDP growth

forecast for both 2017 and 2018 remains unchanged at 2.1% and 2.2%, respectively.

While the 3Q17 growth may be negatively impacted by the two current hurricanes, further GDP growth may

materialise via reconstruction efforts after the hurricane season and particularly if the government

successfully pursues envisaged reforms, predominantly tax reforms. However, numerous uncertainties

remain, mainly in political decisions, but also for monetary policies. To some extent these are dependent on

the potentially re-emerging debt ceiling debate towards the end of the year.

US trade policies and global trade

Global trade is once again attracting attention. The new US Administration has decided to review numerous

trade agreements, including the North American Free Trade Agreement (NAFTA), to withdraw from the

Trans Pacific Partnership (TPP), open discussions on trade with China and announce a potential change in

its trade agreement with South-Korea (“Korus”). Furthermore, a border adjustment tax with neighbouring

Mexico has also been debated over the past months, however this idea is currently not being pursued

further. While these US-driven initiatives indicate a trend toward a more protectionist global trade regime,

China is pushing to finalise a large trade agreement in Asia-Pacific – the Regional Comprehensive

Economic Partnership (RCEP) – by the end of this year.

Global trade has been very supportive to global economic recovery and 2Q17 trade growth of 4.3% marked

the largest rise since 2011. The ongoing NAFTA negotiations, in combination with US trade talks with China

need close monitoring, given that the main trading counterparts for the US – Canada, Mexico and China –

not only account for around 47% of its imports, but also for 42% of its exports. It should be noted that due to

the elimination of tariffs between the participating NAFTA nations, the US was able to import much of its oil

more cheaply from Mexico and Canada. However, should the US Administration insist on one of its

demands to impose higher tariffs on goods imported from Mexico, this could have severe impacts on the

cost of imported goods in the US in the short term. In turn, Mexico could revert to the high tariffs it had

before NAFTA, which would impact US exports of many commodities, including oil products, for which

Mexico is the one of the largest export destinations.

In addition, long-standing global trade arrangements may also be impacted by the ongoing Brexit

negotiations as well as the discussion of additional sanctions imposed by the US on several world

economies affecting global trade patterns. Depending on the outcome of all these developments, the results

may have a significant impact on global economic growth, oil-trade and oil-demand.

58.8

55.3

45

50

55

60

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

Index

ISM manufacturing index

ISM non-manufacturing index

Sources: Institute for Supply Management and Haver Analytics.