The global economy has slowed down in the last couple of months. It is likely to remain subdued throughout 2019. The following reasons are impacting global economic growth for 2019.
The US economy is slowing down. The inflation in the US is still higher than what the Federal Reserve would like. Under the circumstances, the US Federal Reserve is of the opinion that it should increase the interest rates by 25 basis points in the next two quarters. But President Trump is against raising the interest rates as it will further slowdown the economy. We have to wait and watch who takes the final call. The US economy is expected to grow at 2.6% in 2019. The world economy is expected to grow at around 3.4% in 2019.

Relations between the US and China have soured in the last one year because of trade biases historically followed by the Chinese government against imports from the US and unwillingness of China to liberalise its economy and allow American and international companies to hold controlling stake in Chinese companies. Several sectors of the Chinese economy are still reserved for Chinese public sector companies. China also uses pressure tactics to compel western countries to transfer technology and intellectual property to China, because it is a major market for western companies. They also subsidise domestically manufactured products so that they are competitively priced in the international markets. Further China purposefully keeps its currency undervalued so that its products are competitively priced against major currencies like the USD, Euro, GBP and the Japanese Yen.

All these factors are at the center of dispute with the US. The Trump administration is currently negotiating the above concerns with the Chinese government. During the negotiation period both countries have agreed to delay or postpone imposition of tariffs against each other’s products.

Unless these disputes are settled between the two biggest economies in the world, stock markets globally will remain subdued. Also crude oil prices will keep low as the US and China are amongst the largest consumers of crude oil in the world.

The European Union which can be considered to be the second largest consumer of globally manufactured products and services is not having a great time either. European biggies such as Germany, UK, France and the Netherlands are all facing a stagnant economy. UK is specially under pressure because of the ongoing Brexit process. Major companies are cutting jobs and production in the UK and moving to mainland Europe. This is more pronounced in the Financial and automobile sectors. There is also a conflict of interest between western and Eastern countries in the Europe. All major European economies are almost stagnated and not growing.

Chinese economy is on the slowdown because of weakening domestic demand and trade tensions with the US. China cannot afford to ignore US demands as it is its largest trading partner and importer of Chinese goods and services. Chinese population is also showing signs of stagnation since the last few years. China’s one child policy initiated in the 1980s is backfiring as the population is growing older and one individual has to support not only his children but also his parents and grand parents ( because of the one child policy). Since 2014 China has replaced the one child policy with the two child policy. Because of the stagnating population and low surplus income, domestic demand for goods and services in China is on the decline. There is also a problem of overcapacity and diminishing profit margins. In spite of the slowdown, the Chinese economy is expected to grow at around 6.5% in 2019.

After the US, Europe and China, the next biggest consumer of goods and services is India. It could also be at par or ahead of Europe in terms of consumption of goods and services. The Indian economy is growing at a decent pace and is expected to grow at around 7.5% in 2019. It is the fastest growing major economy in the world today. India’s growth story is likely to be uninterrupted, at least for the next decade or two. It will rank among the top three economies in the world in terms of nominal GDP, by the year 2029. Today it is the sixth largest economy in the world in terms of nominal GDP. All major sectors of the economy are expected to grow at a decent pace in the next decade, irrespective of which government comes to power. Indian economy is powered by the growing population and the rising educated middle class.

The Japanese economy first reached a saturation point in 1989. Japan has not been able to overcome its stagnating economy ever since because of a low population base and a ageing population. Japan still ranks as the third largest economy in the world as on today.

We are not covering South East Asia, Australia, Canada, Russia, Africa, the MENA region, Latin America because these regions do not contribute significantly to global population or global wealth (Not true about Australia and Canada).

Crude oil is likely to remain under pressure because of slowing global economy. Although OPEC and the non OPEC alliance led by Russia are trying to reduce oil production to create a supply glut. The US shale oil industry is although likely to offset any crude oil supply glut created by the former.
All major commodities will remain under pressure due to slow down in global economy and the ongoing trade war between the US and China.
Bonds yields will most likely be high, globally because of tightening Monterey policy followed by most Central Banks across the world.
The US dollar, Great Britain Pound, the Euro and the Japanese Yen will continue to hold their strengths against other major currencies.

Leave a Reply