For economic thrill-seekers, 2018 was definitely one of the more fun years in recent memory. The rest—likely the majority—could do with less of that kind of fun. If so, 2019 doesn’t exactly promise to be their year: there is a fairly substantive list of ongoing and upcoming events that virtually guarantee that the wild ride isn’t over. But like all wild rides, it’s a bad idea to shut your eyes; what are the big things to keep an eye on in 2019?
Are we heading for recession?
Growth is on everyone’s minds, and the ranks of the recession bugs are growing. Most pundits feel that for a number of key reasons, we are late in the current economic cycle, and due for a downturn. While we disagree, there is a chance that sentiment itself could tip things sideways; the fear-factor seems on the rise.
Monetary policy is fueling slowdown fears. Higher interest rates are weighing on emerging markets, and highly-indebted developed economies are getting twitchy about their prospects. Less obvious, but no less unnerving is the unwinding of quantitative easing—where the ECB has now joined what until now has been the U.S. Fed’s one-man-band. It’s no surprise that the ECBs debut was greeted with stock-market upheaval.
Government shutdown in the U.S. guarantees that global growth will be weak in the early going. The impasse over funding for ‘the wall’ is going into its 5th week, and at the time of writing, resolution seems a long way off. Although temporary, the partial shutdown is affecting real activity at a moment of particular economic vulnerability, and could have lasting consequences.
Do we face prolonged protectionism?
CUSMA may be agreed and signed, but it’s virtually assured a wild ride through both the House and Congress this year. Expect key moments of drama, and brinksmanship that will test the mettle of exporters in all three countries. It ain’t over yet, by far.
A more imminent trade threat is Brexit. March 29 is looming fast, but Britain’s legislative deadlines are almost immediate. With only three days from Tuesday’s vote to construct a ‘Plan B’, even a majority approval of same doesn’t guarantee what it will ultimately look like, as Parliament then has the right to amend it. As such, there is still a high probability of a ‘no deal’ outcome, with no visible UK contingency plan in place.
The U.S.-China tariff issue is more than just a spat. It’s being blamed by many as the chief cause of early-year weakness and flagging economic confidence. The stakes are high on both sides, which is key to our belief that resolution will happen before the year is out. Neither side wants to see the 25 per cent tariff, and the 90-day delay of its imposition is a highly-significant two-way signal of intent to resolve the impasse. Even so, the interim hesitation of investment and trade activity isn’t helping.
The electoral landscape
The list of key elections in 2019 is shorter than usual, but that’s no guarantee of stability. Among the ones to watch, India goes to the polls in April and May, and according to current opinion, the majority that Modi has leveraged to enact contentious policies may once again give way to a hung parliament. The normally-sedate EU parliamentary elections, slated for May 26, could see higher drama in the wake of Brexit and populist activism among the Continent’s anchor tenants. South Africa heads into a general election amid economic turmoil. Other notable general elections include Indonesia, Greece, Nigeria, Afghanistan, Argentina, Ukraine, Turkey and of course, Canada, where we’ll head to the booths sometime before October 21.
These are key predictable events—but what we can probably predict with fair certainty is that the unpredictable will still figure prominently in the economic and political landscape this year. In the economy, that will translate into investment hesitation, not a new feature, but one that grows in impact the longer it persists. A nagging fear is that hesitation spills into the consumer realm—a much larger chunk of the overall economy, and one that’s already being affected in certain key emerging markets.
The bottom line?
Following a decade of economic uncertainty, this greatest enemy of the current economy is undiminished as we enter the New Year. While unlikely in 2019, putting the world on a more certain footing would indeed rank among the great achievements of the year.
This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.