A difficult outlook for global economy in 2019

Tuesday, 2018-12-11 16:25:48
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The global economy is expected to face multiple challenges in the new year 2019.
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NDO – Just ahead of the New Year 2019, many international experts and organisations have expressed concern about the global economic outlook next year, as a series of hurdles and challenges lay ahead. Laurence Boone, chief economist of the Organisation for Economic Cooperation and Development (OECD), has stated that the current risks are enough to set the alarm bells ringing and countries must be “well-prepared for every storm”.

The first challenge for the world economy in 2019 is the risk of declining growth, especially in the context of the escalating trade war. After the US-China trade war broke out in the third quarter of 2018, the world has witnessed an array of major economies being influenced. The growth rate and macroeconomic indicators of China and the Eurozone have all declined. Even the US economy, which has grown beyond expectations so far this year, is likely to slow down next year. In an interview granted to the Wall Street Journal, Maurice Obstfeld, chief economist at the International Monetary Fund (IMF), predicted that the US’ economic growth would slow down in 2019, as the weakening economic results in both Asia and Europe are threatening to adversely affect the US economy.

The OECD recently lowered its forecast for global economic growth in 2019, condemning the fierce trade war between the US and China as the “main culprit” hindering the global growth momentum. In its latest economic outlook report, the OECD stated that the growth rate of the global economy in 2019 is expected to increase by 3.5%, down from the 3.7% forecast released in September. Although the US and China have temporarily “reconciled” in recent days to conduct negotiations, most analysts have stated that the trade war between the two powers will escalate next year, causing impacts on the world economy. US Trade Representative Robert Lighthizer, who is in charge of trade talks with China, has expressed pessimism about the possibility of reaching an agreement with Beijing ahead of the deadline on March 1, 2019. Such a statement from an insider has extinguished the fragile hopes of many that the US-China trade talks would not last for a long period of time.

Alongside the risks of declining growth and impacts from the US-China trade war, the world economy in 2019 also faces multiple risks and challenges from the financial system as well as other political issues. Ten years after the economies recovered from the financial crisis that erupted in the US and Europe in 2008, concerns over the debt crisis are now returning. Recently, at the 2018 G20 Buenos Aires Summit in Argentina, IMF Managing Director Christine Lagarde expressed concerns over rising public debt in emerging economies, while urging the G20 members to address this urgent issue. According to IMF estimates, global public debt has reached a record US$182 trillion.

A number of other political risks are also expected to “shed shadow” on the world’s 2019 economic growth prospects. The Brexit process currently remains “stuck” in the UK parliament as many MPs of the ruling party, as well as the opposition, have voiced protests against the Brexit deal that the UK government has recently reached with the EU. In the case that the UK parliament “says no” to this agreement, the country could fall into a political crisis. Bloomberg estimates that the “hard” scenario mentioned above could lead to a 7% decrease in the UK’s GDP by 2030 compared to the time when it was still a member of the EU. Once such an unexpected scenario occurs, this will have a negative impact on the global economy.

Meanwhile, another EU political risk is the contradiction between the Italian government and the EU on budget plans with Rome’s heavy expenditures. In its recently announced annual review of budget plans of the Eurozone countries, the European Commission (EC) stated that Italy’s budget is “particularly not in accordance” with the limits set by the EU. However, Italian officials have still not given in to EC requirements concerning budget plans. This conflict has left investors and EU officials feeling insecure and worried that Italy will spark a new financial crisis in Europe next year. In addition, 2019 will be the year of elections in some of the world’s leading emerging economies, which threatens to cause negative impacts on the global economy. Also, the Democrats taking control of the US House of Representatives during the recent midterm elections may possibly hamper US President Donald Trump’s agenda, thus hindering the growth of the world’s no. 1 economy.

In 2018, the world has undergone many fluctuations. In 2019, the world economic and political situation is forecast to be even more complicated and unpredictable than the previous year. The aforementioned context requires world leaders, especially the leaders of powers and international organisations, to “unite together” in stamping out “uncertain” hotspots, prevent protectionism, and ensure a peaceful environment for the global economy to continue its recovery and development, avoiding following the “footsteps” of the crisis more than a decade ago.