The growth of global economy at a soothing pace masks the impending risk factors that might come into play in the near future.
Expanse of global economics is expected to remain within 3.0 percent rate in the years to follow. But on the hind side, there are risks which could potentially disrupt the slow growth rate on a dynamic scale.
According to World economic prospects, there are increasing risks of trade disputes and there needs to be an abrupt tightening of financial conditions globally. Climatic risks, needless to say have been a matter of great concern.
While there has been a great deal of rise in the growth rates of developed countries, on the hind side there has been increasing loss of government wealth in war waged countries like Syria. The growth trajectory has always been on the positive side on several Eastern and South Asian countries.
Unemployment levels have gone down drastically and are considered to be at an all time low. But even on these supremely developed countries, growth in economy has not always been equal. Most of the countries are industry driven situated in the urban regions. Rural areas of these countries are often left behind and a sharp contrast in lifestyle and health is notable.
Some of predicted economic forecast of 2019 include the following:
- US economy is expected to prevail at the top over other fast developing countries. Based on the current trend of economic rise, it is expected that US will continue to have a steady growth rate of 2.9%. The stimulus behind the growth is largely weighed on the fiscal stimuli of tax cuts.
- Europe is expected to stagger. The growth of Europe was highest in 2017, but it has come down even since. According to HIS Markit, Europe economy is expected to further drop down to 1.5% among the factors that heavily contributing to the economic decline are Angela Merkel’s winddown down chancellorship, negative public views on Emmanuel Macron headed government and Brexit.
On a minor scale, increasing inter-nation trade tensions beside low credit conditions are also a driving factor.
- Japan’s economy is expected to rise but on an insignificant scale in 2019. Its growth is predicted to be lower than 1%. Primary cause of such a low increase in growth due is the near abandonment of trade ties between US and China.
Ultra-accommodative monetary policies are going to continue according to predictions. Japan is experiencing a series of cyclical declines which are short lived on a larger scale of slower gradual economic rise.
- China’s economy is predicted to be on a windfall. Ever since experiencing drops starting from 2017, growth rates have continued to fall. Over the last few years, rates have dropped from 6.9% in 2017 to 6.3 % in the beginning of 2019. These gradual declines are weighed heavily on US tariffs. Tariffs are limited, so to stabilize the economy, policy makers have initiated many fiscal measures and monetary input procedures.
- Most of the fast-developing countries are expected to experience deceleration. Countries like Tukey, South Africa, Brazil, Russia and India who experienced a very mild increase in economy in mid-2018 will witness stagnation in growth.
- Commodities market might experience a roller coaster ride. Price collapse instead expected to be lower than the great downfall in 2015, but expected figures have shown bleak chances in positive tun of events. Oil prices are predicted to continue its steady rise and reach $71.0 in the coming years.
- Global rates of inflation are not going to get higher than 3.0%. back in 2015 there was a sharp rise in price due to transition of several countries from deflationary state to a stabilized condition.
- Many central banks might follow the lead of Federal bank and increase rates till up to three times. Key economies of the world are at a different point on business cycles. With slow growth rates and almost muted state of inflationary pressures, pace of removal of accommodation will be more modest in 2019. Whereas Central banks of Europe and Japan are not expected to hike rates till 2021. On the hind side, bank of china will continue to maintain its modest stimuli rates.
- With continued potential of high volatility and price hikes of Federal bank of US, its currency value will continue to rise in 2019. Both Euro and Sterling could experience a negative curve due to Europe’s impending political uncertainty.
- Though political shocks are increasing on business cycles, they are yet to cause global recession of economy. Its highly unlikely to affect global economy in 2019, but the increasing trade conflicts coupled with increasing debt levels and budget deficits could bring down the whole system in the near future.
List of charts which are quite critical to watch in 2019:
- Indexes of Global Purchasing Managers (PMI) conduct periodic surveys related to businesses of purchasing managers. PMIs serve as a great guide to the current state of economy globally.
Growth has started to show gradual fall with minor chances of stabilizing. Though there were minor signs of improvement in US, the values are not nearly consistent. Growth rates are expected to hike up in later quarters of this year.
- Inflation rise is generally preceded by economic downturns. The current situation is such, that most of the inflations have just started to rise. With the increase in core inflation rates in US, which is even higher than the rates of inflation of Federal banks, interest rates rise has halted for the time being.
China’s condition is just the opposite. There is a sharp contrast in core inflation and people banks intertest growth rate. Governments target is around 3% but actual rates are nothing near to these percentages. Similar conditions exist in both Europe and Japan.
- In terms of monetary policies, yield curves are a good guide. When rates of short-term interest are low as compared to long term interest rates, business groups who are looking for long term benefits, can invest lend or borrow for longer times.
When situations are reverses i.e. if the short-term rates are higher than long term rates then businesses are bound to suffer loss. Such is the case of US yield curves. Its now being preceded by huge recessions. Thus, it’s a matter of grave concern among several business groups who are looking for long term investment and business growth. A fed funds and 10 years yield bond leaves a huge gap in between them. Worrying sign is that the 2-year bonds and Federal banks fund have also flattened.
- The curves do not always show positive signals. Yield curves might indicate negative values and lags. Thus, if the curves are already inverted, it might not necessarily suffer recession before 15 months. Quite often in the past, peaks of share markets generally 3-6 months just before the start of recession periods. Therefore, it’s really hard to predict the commencement of recession from beforehand.
- There are several factors which attributes to the flattening of yield curves. Some of the factors might be vaguely related to economic growth. Some of these examples of flattening might be due to near zero yields of bonds in Japan and Germany. These negative values are the catalysts of holding down US bond yield growths and also the demands of high investors.
- We monetary policies are no as tight as it might seem to be. In truth, the Funds of the Federal banks are hardly positive. Rates of nominal Fed funds are very well below the required nominal GDP levels for positive growth
- Moves in US dollar have global significance unlike other individual currency moves that are only limited to their respective countries. The reason being, most of the countries have debts in the reserves of their currency statuses. Thus, emerging countries find it hard to cope up with US denominations. Since the growth of trade of US economy is also connected to these emerging countries, several US company’s growth also suffers lags.
- With advancement of technology manufacturing have become more and more less dependent on human laborer. In terms of economic activity, services are gradually becoming a greater share thus world trade is slowing down a great deal. The threat had increased last year, due to Donald Trump’s government run protectionists.
- Several trade war situations had stalled growth. Thus far the tariff rates have hardly increased and are just about 2%. But on the positive note, trade wars are not going to happen anytime soon as there is a truce among nations. US and China meet had many positive outcomes and it is expected that trade benefits will start to roll in gradually in the coming years.
Some of the biggest world political risks of 2019 include the following:
- Populist government of Italy has locked themselves in a tussle over the spending sprees with Brussels. This tussle has unnerved several investors and other Union authorities of Europe.
Thus 2019 could be year when all hell breaks loose. This could be the year of EU’s demonstration of ability. They could impose disciplines on budgets for all its member states. There might be a collapse of alliance between anti-migration league and Five Sta anti-establishment Movement. This is expected to occur by in moth of May after Parliament elections of Europe.
The outcome could send Italy into political chaos. 10 years yield of Italy has already topped the chart in last four years, sot here are high chances of Italy’s financial market succumbing to increasing pressure.
- Ruptured political structure of Brexit has finitized nations path of exit from EU. Even in a fluid condition as the one prevailing right now, there are continuous risks of change in Prime Minister and government. According to Boomerang Economics, if this situation continues, British GDP is expected to fall by 7 percent by the time it reaches 2030. Economy would experience stagnation if Brexit involves UK’s ties with EU. The result would yield less than 3 percent in next 10 years.
- Present Donald trump’s political agenda would cripple if Democrats take hold of Representatives. This could open gateways for caring forward further investigation into all his presidential campaigns, family businesses, and administrative views. This would mean gridlock of policies for two years; thus, business groups would incur loss when it comes to tax cuts. Infrastructural spending will plunge higher and governments could experience shutdowns.
- Many major economies of the world are going to contest election in 2019. Likes of India, Indonesia, Argentina, Nigeria and South Africa are headed towards a direct of market stability with their latest political stance.
- Relations of US and Iran will hold key in Oil streaks of Middle East politics. US’s current relations are under scrutiny and it could lead to Saudi Arabia cutting off all its trade ties with them. Recently the death of US journalist Jamal Khashoggi has tended to jeopardize the situation even more, but Trumps government has assured that they won’t let his murder be the cause of nations trade breakdown.
- Waterways have been a boost for US as they are boosted by Taiwan’s support. They are planning to setup navigation exercises with full freedom in South East China Sea. This could increase the risks of Miscalculations and might spark several untimely negative situations by hampering US ties with China.
As of now there are no such indications of heavy excesses which could be signs of ultimate recession. Over investments are yet to take shape in terms of capital goods and housings. Leading US indicators are well off from recession levels and there are plenty of inflation signs. Only possibilities of such recessions would be untimely advent of trade wars. But the situations are mended for benefits amongst most of the nations and there aren’t any possibilities of such wars in the next 2-3 years.
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