Global, US Economies Should Be Fine Through 2019, Bank Says

Growth is expected to slow next year, though, according to BNP Paribas.

Fears are rife that the US economy, not to mention the whole world’s, will slip into recession as early as next year. But an influential global bank has a more optimistic view, at least for 2019.

According to France’s BNP Paribas, growth for the US’s gross domestic product will be 2.8% for this year, down from the heady 4.2% racked up in the second quarter. For 2019, GDP growth will slow by one percentage point, to 1.8%, said analysts at BNP, the globe’s eighth-largest bank, in a research report.

As for the world, BNP forecasted 3.6% growth this year and 3.4% next. That’s mainly powered by a still-strong showing in China (albeit slowing to 6.1% in 2019 from 6.4% in 2018) and accelerating growth in India (7.4% this year, 7.6% next).

BNP highlighted the opposing dynamics at work, with ongoing trade tiffs between the US and China, as well as the European Union and others, and rising interest rates on the minus side—against robust economic growth in much of the world.

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“Global growth has shifted to a lower gear as trade-related uncertainty has compounded the impact of a moderate tightening in monetary conditions,” the report maintained. “For the rest of 2018, however, strong labor markets, positive sentiment, and a generally supportive policy mix look set to keep the pace of activity solid overall and above trend in most economies.”

Much of the world’s increasing inflation, and certainly that in the US, is owing to higher oil prices. But BNP expects that to ebb in 2019’s second half amid slowing economic activity.

The report contended that BNP sees “some scope for inflation to rise in the near term, reflecting reduced spare capacity. The upcoming growth slowdown, however, is likely to prevent a sustained price shock.”

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PRI Leader Calls on Institutional Investors to Take Climate Change Action

Fiona Reynolds warns that government action will occur if institutional investors don’t ramp up climate change investment initiatives.

The leader of the world’s largest responsible investment organization called Wednesday for institutional investors and governments to step up action on climate change or risk government action and unstable markets.

Fiona Reynolds, CEO of Principles for Responsible Investment, opened the group’s annual conference in San Francisco Wednesday with a warning.

“If investors and governments do not ramp up their actions on climate change now, then they risk a more disruptive transition in the future as governments will be compelled to impose forceful measures, which could trigger a phase of market volatility,” she said.

Her remarks came with the release of a new report by PRI, which calls on asset owners to revamp their asset allocation with an eye to sustainable investments, including the building of investment portfolios that hold the stock of companies with low carbon emissions.

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While such portfolios are more common among European pension plans, only a few plans in the US, including the $228 billion California State Teachers’ Retirement System (CalSTRS) and the $207 billion New York State Common Retirement Fund, have such portfolios.

“There is a lot of action on climate change, but it’s not nearly enough to meet the goals of the Paris Agreement,” said Reynolds.

More than 1,900 pension plans, foundations, endowments, and money managers have signed on to the principles of the United Nations-supported PRI, which calls on investors to use environmental, governance, and social (ESG) factors in their investment decisions.

Reynolds did not mention the US or President Donald Trump by name in her speech. Trump pulled the US out of the Paris Agreement in June 2017.   

The global voluntary international pledge had gone into effect in November 2016 as part of a worldwide effort to deal with climate change.

The PRI report released Wednesday also calls on institutional investors to review their own governance structure as well as their contracts with money managers and service managers to make sure they have the appropriate ESG investing focus.

The report also details that institutional investors should review the carbon risk of companies they hold in both active and passive portfolios to assess risk and “ensure that exposure in the high carbon-sector is being approximately managed to reduce the risk, while the opportunities are also being captured.”

Reynolds said investors, in aligning their activities with the Paris Agreement to limit global warming, will be able to prevent governments from stepping in.

“In doing this work, we can also give investors a clear scenario, based on a 2025-2030 announcement and implementation phase to assess their financial exposure to high and low carbon assets so they can take swift action to protect their returns,” she said.

While some advocacy groups have pushed for institutional investors to divest of oil companies, PRI has taken a more measured approach, saying its approach does not require ruling out investment in any sector or company. PRI says its approach is to include all ESG information in investment decision-making, to ensure that all relevant factors are accounted for when assessing risk and return.

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