Global growth is broadly stable butdownside risks from rising trade tensions are increasing.Aweakening recovery in trade and manufacturing activities isweighing down global growth. Global goods trade hasdecelerated more rapidly than expected. U.S. tariff s andthe retaliatoryresponses of its trading partners haveaffected 2.5 percent of global goods imports. Surveysofcompanies in the U.S., China and Japan suggest that therisks of a trade war have not yet fullymaterialized. Whilethe Eurasian Union (excluding Russia) posted strong growthin 2018, Russia'smain trading partners – the Euro areaand China – experienced a growth slowdown. Financialconditions for Emerging Markets and Developing Economies(EMDEs) are tightening. Divergent monetary policies andgrowth prospects among the U.S. and other major economiescontributed to a significant appreciation of the U.S. dollarin 2018. This, together with intensifying trade tensions,deteriorating growth prospects and renewed attention toexternal vulnerabilities has contributed to significantdepreciations and capital outflows in many EMDEs. EMDEcurrencies fell – including the Russian ruble – andcumulative portfolio outflows from EMDEs surpassed thoseseen after the 2013 taper tantrum. Economies with externalvulnerabilities, including Argentina, Indonesia, and Turkey,experienced the sharpest currency depreciations. While thespillover from those countries has been limited, theintensification of turmoil could lead investors toreevaluate their exposure to EMDEs and to capital outflows.
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