BHP slashes global growth forecasts as tariff tensions bite

BHP has cut global growth forecasts for next year because of rising trade tensions led by Donald Trump’s tariffs.

BHP CEO Andrew Mackenzie. Picture: AAP

BHP has cut global growth forecasts for next year by a quarter of a percentage point because of rising trade tensions led by Donald Trump’s tariffs, with the big miner becoming more cautious than most about the near-term outlook for global trade that drives demand for its minerals.

BHP said the recent US tensions, with China and others expected to retaliate, had led it to cut its 2019 and 2020 global growth forecasts to 3.25-3.75 per cent.

The midpoint of that range brings BHP below Bloomberg’s consensus rate of 3.7 per cent for 2019.

“Free trade is the engine of the global economy, which ultimately BHP depends on,” chief executive Andrew Mackenzie said last week after delivering a one-third boost in underlying full year profit to $US9.62 billion ($13bn).

“We are, therefore, somewhat cautious about the short-term outlook as we closely monitor trade and geopolitical developments.”

In June, the US President stepped up his protectionist measures by announcing plans for a 25 per cent tariff on up to $US50bn of Chinese goods in response to alleged intellectual property theft.

This led to retaliatory plans from China and threats of more tariffs from the US. A BHP spokeswoman said the previous global growth forecast, which the company had not disclosed, was a range of 3.5 to 4 per cent, with the midpoint in line with Bloomberg consensus.

Next year’s forecast cut suggests BHP, with its own internal analysts and economists that have access to detailed trade information as the world’s biggest miner, is seeing an impact that others, including the International Monetary Fund, have not yet factored in.

The IMF last month warned trade policy threats could shave half a percentage point from its 2020 estimate. But it is yet to reduce its forecast of 3.9 per cent for this year and next.

The new forecasts were revealed in the company’s latest economic update, released last week.

BHP’s head of market analysis and economics, Huw McKay, said: “The downgrade reflects the negative impact of rising trade protection, which we expect will be partially offset by more expansionary domestic policy settings.”

He said world trade volume forecasts had also been cut.

“Global trade volumes are expected to expand about 1 percentage point faster than world GDP for the second consecutive year in calendar year 2018,” Mr McKay said.

“However, sustaining that relativity will be very difficult given the emerging policy climate.”

Ratings agency Moody’s also last week warned tensions would restrict global growth.

“US trade tensions with China are more likely to deteriorate this year and will dampen global growth in 2019,” said Moody’s macroeconomic board chair, Elena Duggar.

“We expect to see more restrictions on Chinese acquisitions of firms in the US and Europe, and our base case scenario now assumes that the US administration will go forward with some of the proposed restrictions on imports from China.”

The ratings agency did not give a global growth forecast. But it said trade action was likely to shave between 0.3 and 0.5 percentage points from China’s 2019 growth. For the US, the restrictions are likely to trim 0.25 percentage points from growth.

BHP remains optimistic about long-term demand for its products and its 3.5 per cent mid-point of its 2020 forecast range is above Bloomberg consensus of 3.3 per cent.

“Looking beyond the immediate picture, in the medium term, we see the need for additional supply, both new and replacement, to be induced across most of the sectors in which we operate,” Mr McKay said.

“In many cases, this could lead to higher-cost supply entering the cost curve (and supporting prices).”

BHP said the trade tensions between US and China were expected to hit growth in both countries by between a quarter and three quarters of a percentage point.

“Trade tensions have had a material impact on Chinese consumers and businesses,” Mr McKay said. “However, the scale of the increase is smaller than the impulses we have observed historically during times of pronounced domestic policy uncer­tainty, which is encouraging.”