Four economic predictions for 2019 by Amir Safar, Senior FX Consultant, Worldwide Currencies
2018 saw the start of a global economic slowdown, with Brexit and the US-China trade war dominating the headlines. Most analysts predict that this slowdown is likely to continue over the next 12 months, with some speculating it will bring about recession in certain economies. Although possible, I anticipate 2019 to be more of the same.
1. Brexit uncertainty likely to stagnate UK economic growth
It is clear that 2018 was the year that brought about a huge amount of uncertainty for the UK Parliament, with Prime Minister Theresa May holding on to her leadership in the midst of Tory rebellion and a vote of no-confidence. Parliament has recently rejected the possibility of a no-deal Brexit. The main issue the government faces is the Irish backstop, which has been strongly opposed by many MPs in the House of Commons. In a bid to get Parliament to agree to her Brexit deal, May will go back to the EU to try and find an alternative to the backstop altogether. This will most likely require more time and compromise on both the UK and EU’s part, so pushing back Article 50 could be on the cards if the EU do not want to initially re-open negotiations. Whilst uncertainty ensues, the economy and housing market in the UK are likely to show little growth, with consumer confidence decreasing and business investment put on hold whilst we wait for more clarity over the Brexit process.
2. U.S. labour market goes from strength to strength, whilst President Trump battles for his wall
Despite the global economic slowdown, recent US employment figures showed that the number of unemployment benefits claimed has hit a 50 year low. This is all the more impressive when you consider the spike in government employees who filed for unemployment benefits due to the recent US government shutdown (the longest in history). This is a good sign for the next 12 months and with the Federal Reserve portraying a more dovish tone with regards to interest rate hikes, President Trump will divert his attention elsewhere. The Democrat-controlled House of Representatives and Trump will need to come to a compromise to avoid further shutdowns in 2019, although it is difficult to envisage that they will approve the full $5bn+ that Trump is looking for. The greenback has been going from strength to strength this year thanks to several rate hikes in 2018 and is likely to benefit further from its safe-haven status in the next 12 months.
3. Eurozone slowdown continues
Eurozone economic growth this year is likely to take a hit, with many economists pointing towards external factors. Avoiding a no-deal Brexit would undoubtedly help industry in the EU, but heightened trade tensions and changes to the automotive industry are likely to put a lid on extensive growth. Internally within the Eurozone, the European Commission needs to keep an eye on many of the larger economies that are meant to be the driving force behind the EU. Germany’s growth has hit a five year low as a result of these tensions. With France likely to go above the 2% budget deficit target due to President Macron giving in to the demands of the gilets jaunes, and with Italy‘s new government already causing friction with regards to their budget, the European Commission will have a lot on its plate.
4. Conservative growth in China
Although growth in China hit 6.6% for 2018, this is the lowest level of economic expansion we have seen in 28 years. The US-China trade war has been the main external factor with export levels falling, though China was battling with a lack of growth before this issue came to light. The government has been trying to reduce the high debt levels that China has been experiencing but this has been at the expense of economic growth. Domestic and external factors have caused the Chinese Renminbi to weaken significantly over the last six months, with Trump labelling China a ‘currency manipulator’. With China agreeing to increase the level of US imports over the next couple of years and ongoing negotiations with the US finally looking positive, it is likely that growth will be higher than the level we saw last year but won’t reach the eye watering levels it has hit in previous years.
Although uncertainty is set to continue globally in 2019, it is likely that we will have more clarity by the end of the year. It will be interesting to see how major economies cope with the global economic slowdown whilst dealing with other internal political issues