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Forecasting the Global Economy in 2019: United States, China & Emerging Markets

January 23, 2019

January 23, 2019

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Forecasting the Global Economy in 2019: United States, China & Emerging Markets

2019 is shaping up to be a turbulent year for the global economy with various political and economic risks threatening stability and growth. Here’s a little secret though; economic forecasters say that every year.

2019 is shaping up to be a turbulent year for the global economy with various political and economic risks threatening stability and growth. Here’s a little secret though; economic forecasters say that every year.

Nevertheless, it would be unwise to not give due deference to the hazards that seem to lay ahead, and it must be said that 2019 does appear particularly littered with potential pitfalls. With a little help from expert analysts and forecasters, here’s what we see as the global economic trends for 2019.

United States

While the US may have experienced a turbulent end to 2018 in its markets, and some analysts are expressing similar pessimism about 2019, not everyone is subscribing to the all doom and gloom theory; Dubravko Lakos-Bujas, head of US equity strategy at JP Morgan believes the negativity is unfounded. Despite the current cycle of growth being the longest uninterrupted expansion since 1860, “this concern seems misplaced, in our opinion, since the present cycle has already experienced two intra-cycle resets, in mid-2011 and late-2015,” Mr. Lakos-Bujas opined, adding that 2018 could be viewed as a third reset. He believes that the fundamental outlook in the US equities markets remains healthy in terms of earnings, investment spending, corporate balance sheets and leverage.

On the political front, however, Stratfor is anticipating an uncomfortable year for the US, and only partially of their own making. The Trump administration’s tariff regime will create further space for Beijing to use its economic muscle and global ambitions to chip away at US alliances that have been allowed to fall by the wayside, in the midst of a more insular focus from the US government.

China

Much has been made of the effect of Chinese tariffs on the US side of the fence, but US tariffs are having an effect on China too, and will continue to do so into 2019, with the temporary 90-day reprieve from further tariff actions not suggesting a lasting solution. The outcome of these negotiations seems opaque on both sides, but has seemingly had an impact on Chinese GDP forecasts; JP Morgan projects that Chinese economic growth will slow from 6.6% in 2018 to 6.2% in 2019. China, however, will press ahead with projects that demonstrate its global ambitions – the Belt and Road Initiative is a direct challenge to the US soft power globally, and will allow China to leverage the economic relationships it builds to constrain US influence.

Chinese businesses like Huawei and ZTE will also face increased global scrutiny for their close, cosy relationships with the Chinese government and the security concerns this raises, with the US leaning on allies like Australia, Europe, Canada and Japan to help it curb their influence and spread. The fight over the right to provide 5G networks, the latest and greatest connection coming to telecommunications networks globally, will bring these issues to the fore, as the US fights to keep Chinese influence from the very core of its ally’s communications networks. In the lead up to the 2020 US presidential election, given concerns about the integrity of several recent globe-altering votes, this issue is likely something that will be fought over, tooth and nail.

Emerging Markets

It is inarguably reductive to lump all ‘emerging economies’ into a single category, but there is nevertheless a significant potential trend in 2019 that could benefit them almost universally. Rising US rates and tighter monetary policy, as has been signalled by the Federal Reserve, is expected to weaken the dollar. This is notable for developing economies who almost all have US denominated debts to pay, and who have been negatively impacted by the strength of the dollar in 2018. A weaker dollar will not only provide debt relief in 2019, but will promote their expansion as well.

Europe and Brexit

View our thoughts on Brexit from last week’s vote here.


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