Economic Growth: These Are the Good Old Days

It’s all thumbs up for the global economy, for this year anyway. That’s the assessment of IHS Markit, a forecast that pretty much tracks the conventional wisdom nowadays.

World gross domestic products should “hold steady” at 3.3% in 2018, then gradually slide to 3.2% next year and 3.0% in 2020, according to the firm’s chief economist, Nariman Behravesh, and its executive director for global economics, Sara Johnson.

But here comes the all-important caveat: “The steadiness in growth belies the possible impact of gathering storm clouds,” they wrote in their June forecast. That would be the chance of a trade war, higher oil prices eroding growth, political risks in Europe (read: Italy and Spain), and shaky emerging market nations, like Argentina and Turkey.

In the US, IHS thinks that the so-so 2.1% annual growth in this year’s first quarter will improve to 4.1% in the second quarter ending June 30. And for all of 2018, the GDP expansion should come in at 3.0%, the firm believes. And then … downhill, albeit gently: 2.8% for 2019 and 1.9% for 2020.

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China, the world’s second-largest economy, should have its own gradual slowdown, the report indicated. The first of the culprits here is monetary tightening, which the Chinese central bank is engineering to keep pace with the Federal Reserve’s interest rate hikes (so that the yuan’s worth isn’t harmed). The second: US protectionist trade policies.

Nevertheless, China’s growth, which was 6.9% last year, still will outpace that of the US. The forecast for the Chinese economy is 6.7% this year, 6.4% in 2019, and 6.1% in 2020.

For the US, headwinds include higher oil prices and a stronger dollar—and with even more impact, higher interest rates and the fading of effect of the tax cuts and federal spending boosts. The “fading stimulus in the world’s largest economy will leads to a global slowdown,” the IHS report contended.

Tags: China, Economic Forecast, Economy, IHS Markit, Nariman Behraves

After withdrawing its previous two applications to the US Treasury Department for benefits reductions, the Western States Office and Professional Pension Fund is hoping that the third time is the charm.

The fund’s board of trustees is proposing a 30% benefit cut for all participants and beneficiaries, but with no reduction below 110% of the Pension Benefit Guaranty Corporation (PBGC) guaranteed benefit for each affected participant. The proposed cuts are on a sliding scale, with the size of the reduction decreasing after age 75, and with no reductions for participants who will be at least 80 years old on Oct. 31.

Participants who will be 75 as of Oct. 31 would be subjected to as much as 100% of the reduction amount; participants aged 76 would be subjected to up to 80% of the reduction amount; participants aged 77 would be subjected to up to 60% of the reduction amount; participants aged 78 would be subjected to up to 40% of the reduction amount; and participants age 79 would be subjected to up to 20% of the reduction amount.

Without a reduction in benefits, the plan’s actuary estimated that it would run out of money to pay benefits by 2036. However, the actuary said the plan is not expected to run out of money if the proposed reductions are enacted.

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The pension is positioning its proposal as the lesser of two evils, and says that participants would see an even larger reduction in benefits if it has to seek relief from the PBGC. According to the plan’s application, a participant who currently receives $917.00 a month in benefits would see that lowered to $641.90 under the trustee’s proposal. But it said that same amount would only be $536.25 if the PBGC has to step in and help.

“This proposal is so unfair to the retirees who worked so hard and long and were counting on this money for their retirement,” said Joyce Archain of Ukiah, California, in comments submitted with the application. “They should figure out a way to maybe cut benefits for younger employees or cut salaries for the executives and CEO’s of the pension fund … younger members have time to invest in a 401(k) plan with their employer. The retirees do not have this option.”

Although the Treasury Department has up to 225 days (or Jan. 28, 2019) to review the application and make a final decision, the plan said it expects a decision by Oct. 1.

Tags: Benefits Reductions, PBGC, Pension, Western States Office and Professional Employees Pension Fund