World enters a volatile year
A trade war, nervous markets, popular unrest and Brexit turbulence all look set to shake the global economy in 2019. The Times’ business team looks at the possibilities.
The American economy has been in choppy waters since a dramatic selloff on Wall Street in October, and that is where it is likely to remain in 2019, writes James Dean.
United States President Donald Trump’s US$1.5 trillion tax cuts provided a sharp but ultimately short shot in the arm last year, but there will be no such giveaway in the year to come.
The Democrats have control of the House of Representatives and are set on hamstringing the remainder of the Trump presidency. Meanwhile, Robert Mueller, the special counsel, is nearing the end of his investigation into alleged collusion between the Trump presidential campaign and the Kremlin. There is a strong chance that House Democrats will move to impeach the president early this year, which would disturb the markets.
Corporate America will continue to perform solidly, if not spectacularly, against a backdrop of trade tension with China and other economic powers.
A conclusive trade agreement between Washington and Beijing is unlikely to materialise until the end of the year at the earliest – if at all – which will add to the market’s jitters. Meanwhile, the trade deficit, the source of much presidential ire, will continue to widen.
The Federal Reserve will help the economy to navigate these difficult waters by pausing, and ultimately slowing, its programme of interest rate rises.
Germany’s dependence on exports leaves it exposed to the travails of its car industry and the headwinds of international trade, writes Oliver Moody. In the last quarter, both factors conspired to shrink the economy by 0.2 per cent, its first contraction since 2015, after Trump’s belligerent talk of tariffs and the imposition of stringent automobile emissions limits.
The first few months of this year are likely to bring a tentative return to normality. The threat of a trans-Atlantic customs war has receded for the time being. Unemployment has fallen to a record low of 3.3 per cent, and the chances are that wages will continue to grow in real terms for the time being.
Yet the coming year is bristling with potential threats, the most obvious of which is Brexit.
Britain is still Germany’s third-largest export market, and a chaotic divorce would be acutely painful for both sides. Frankfurt has done fairly well out of a small exodus from the City of London, with at least 20 banks, including Barclays and Deutsche, moving some jobs to Germany, but this is small beer in comparison with the potential damage to the trade in goods.
Then there is political uncertainty. Chancellor Angela Merkel has promised not to fight the next election, which could result in a very different balance to the government.
The eurozone is another weakness. At the end of the year the European Central Bank will begin to unwind its stimulus programme just as growth appears to be softening.
President Emmanuel Macron arrived in power with an interlocking diplomatic and economic agenda, writes Adam Sage. Reforms in France would restore credibility in Brussels and Berlin and enable him to impose change in the European Union. The €14 billion package that he was forced to announce this month to end weeks of civil unrest threatens to unstitch his plan.
As a result of the tax cuts and welfare rises Macron unveiled, the French budget deficit is set to hit 3.4 per cent of national output this year, above the 3 per cent ceiling that eurozone nations are supposed to respect. The investors Macron needs to reignite growth are likely to think hard before France.
The critical issue is whether his entire reform agenda is now on hold. Two significant issues are on the table – pension and unemployment benefit reform. Abandoning the proposed changes might help to avoid more protests, but it would send a signal that Macron’s drive to modernise France has come to a standstill.
Eputting money into mbroiled in a trade war with no immediate solution in sight, China expects to experience a slowdown in its growth for 2019, writes Didi Tang.
Analysts predict that the country’s economy may undergo fundamental changes next year, shifting from high-speed to highquality growth, as Beijing seeks to find a way out of sluggish growth at home and trade disputes with the US.
One priority is to upgrade the country’s industries. Beijing’s ‘‘Made in China 2025’’ initiative focuses on high-tech fields, such as robotics, pharmaceuticals, aerospace and new materials, to move manufacturing up the value chain. The goal is not only to break away from any reliance on Western technology but also to rival the West.
Significantly, Beijing is encouraging growth in the fields of artificial intelligence, big data and new energy vehicles. Autonomous driving also gets government support.
China plans to underplay its manufacturing blueprint so as not to draw punitive acts from the US, but it is unlikely that Beijing would abandon a project seen as essential to the country’s global competitiveness.
It does, however, need to strike a balance, because any retaliatory moves by Washington could be a blow to its technology industry, which still relies on foreign imports.
Manufacturing growth came to a halt in November, with the index falling to 50.0, the watershed point between expansion and contraction in the sector and the lowest since July 2016.
The crunch date for the Japanese economy, on which the hopes and anxieties of politicians, business and the public will focus, is October 1, writes Richard Lloyd Parry. On that day, after repeated postponements by several governments, Prime Minister Shinzo Abe will raise consumption tax from 8 per cent to 10 per cent.
The increase, it is argued, is unavoidable, with gross public debt last year equivalent to 224 per cent of nominal GDP, the highest imbalance in any advanced economy.
In an attempt to mitigate the tax rise and to discourage consumers from retreating into a deflationary shell, the government will spend more than 100 trillion yen on stimulus measures, further adding to the debt its new tax is intended to alleviate.
Five years of ‘‘Abenomics’’ have been only moderately successful in lifting Japan out of nearly three decades of economic funk, and that is unlikely to change next year. Growth this year is predicted to be about 1 per cent.
The economic effects of Japan’s shrinking and ageing society will be felt more strongly than ever. Abe is expected to win over his conservative Liberal Democratic Party to his plans to attract more foreign workers. Despite his party’s discomfort over immigration, the demands of the labour market make it inevitable.
Abe’s negotiators will engage with their American counterparts in talks to avoid a trade war, after Trump’s complaints about Japan’s trade surplus. Brexit will precipitate difficult decisions for Japanese companies with bases in the UK, some of which will move to mainland Europe.
The drama of the year will be the case of Carlos Ghosn, the former Nissan chairman. Will Tokyo prosecutors level criminal charges against him, or will they be forced to admit that they cannot prove allegations made by the company he steered to recovery?
A conclusive trade agreement between Washington and Beijing is unlikely to materialise until the end of the year at the earliest.