Next year is bound to be tumultuous for global economies, with less certainty and more volatility than before.
Investors had grown used to a resilient global economy, with high equity returns and corporate dividends, as well as less risk.
Now the picture is changing fast. Concerns over global growth are increasing. The US continues to surprise with its political moves, while equities there have been tumbling. Europe doesn’t seem to be faring well either: Brexit is tragic, while Italy and Spain face the prospect of recession.
A trade war between the world’s largest two economies presents the biggest risk to the global economy in 2019. Late February marks the end of a 90-day tariff truce that US President Donald Trump and his Chinese counterpart Xi Jinping agreed at the recent G20 summit. If both fail to agree, US tariffs would rise on a huge tranche of imports from China — with equally huge economic repercussions. The US Commerce Department is also set to rule on the likelihood of placing higher tariffs on imports of cars, which would have a grave impact on German car manufacturers, in particular.
A trade war between the world’s largest two economies presents the biggest risk to the global economy in 2019.
John Sfakianakis
China will itself be grappling with a slowdown in 2019. Economists expect growth of the world’s second-largest economy to slow to 6.2 percent in 2019, down from 6.6 percent this year.
Concerns about China’s economy have had a significant impact on oil prices. At present, markets are concerned that if global demand falls substantially in 2019, oil could face further downside risks. But if these concerns subside, oil prices should recover. Currently, oil prices appear oversold and a recovery should be in sight in 2019.
Rising global debt levels will be the great unknown in 2019 — and a big cause of worry. Since 2007, global debt has increased from $167 trillion (including financial institutions) to $247 trillion, according to Bloomberg. Total debt levels now stand at 320 percent of global GDP — an increase of around 40 percent over the past decade.
For the global economy, 2019 promises to be a year full of confusion and change. The Arabian Gulf will not remain insulated from this volatility. Downside risks for growth will elevate for regional economies if oil prices plunge further or stay low. Interest rates will be on the rise, yet cheap capital will be needed to fuel growth and private investments.
That means substantial and meaningful government investments will be crucial to provide the needed stimulus and plug the output gap of the Gulf private sector. Confidence will be key.
- John Sfakianakis is the director of economic research at the Gulf Research Center (GRC) in Riyadh
