Trade war, Brexit, China landing: a major slowdown in 2019 economy?

Euromonitor has just released the 2019 economic forecast in an interesting webinar yesterday (available here), with a good summary of global trends that are going to influence the international economy next year. The elements of uncertainty are not lacking even if the greater fears, the hard landing of the Chinese economy above all, seem to be far away. In any case, the growth forecast is not linear especially if we analyze the macro-areas

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Here’s the global economy outlook, by Euromonitor, with the World Real GDP forecast and its composition (emerging economies vs advanced ones)

Globally speaking, a decrease in terms of real GDP is expected from 3.7% to 3.6% but driven by a marked slowdown in advanced economies compared to a flat trend on emerging ones. Here some positive drivers that could have a major impact in the 2019 forecast:

  • Confidence in the private sector remains at high levels and interest rates destined to remain very low
  • Measures of fiscal stimulus and the long-term effect of the recovery which, in any case, push some advanced economies
  • The slowdown of China that seems far from the hard landing feared by many, and very under control in the short term
  • Unemployment at very low and record levels in some of the advanced economies

However, there are also major threats to keep under control, which we also find in other major analysis papers. The trade war triggered by President Trump together with the Chinese reactions, which at times seems to be defused, leaves considerable room for uncertainty and could drag protectionist tendencies spreading the virus to other countries. Moreover, the confidence of the private sector, beyond the above mentioned global trend, in some cases (such as the Euro area) is at risk, not to mention the loss of effectiveness of measures such as quantitative easing that limit the room for maneuver in case of negative shocks or, again, the limited growth in the level of labor productivity in advanced economies that could accentuate the negative trend we’ve seen in the forecast.

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In the slides above are three insights on Europe, the United States and China, very interesting in my opinion. We see the gap levels between the baseline forecast and pessimistic or optimistic scenarios, and the prediction of a dramatic recession as well. The details are quite evident, especially in the case of the United States and very aligned with the negative drivers mentioned above. The weight attributed to Italy as a game changer in the whole European system is interesting: if the uncertainty on the sovereign debt continues or increases, the most negative scenario has greater opportunities to happen, while a rescheduling of deficit expenditure with respect to GDP is read by the model as an element able to positively influence the whole area. In the Chinese market slide it is important for China to highlight the weight of relations with the US and the trade war, but also the possible change in the structure of the credit system and interbank relations, a variable that is not marginal in a very peculiar economic system like the Chinese one.

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Indicators of retail sales and industrial production, together with business and consumer confidence indices. Four fundamental variables to understand the evolution of the economic scenario in China in 2019

 

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…and a risk map: where you can double check the GDP impact and the probability expected for every single driver

[header pic by Nine Köpfer on Unsplash]

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