A British prime minister once noted that “a week is a long time in politics,” but economists tend to take a longer-term view of events. For them, years and even decades are the time scales against which developments are measured.
Some years are pivotal — key watershed periods that signify the shift from one macro-economic climate to another. For example, in 2007, the indicators were all flashing red, clearly pointing to a period of instability that came together in the global financial crisis of 2008 and 2009.
In contrast, in 2010, once the financial storm had been weathered, the bellwether indicators were again looking upward, heralding one of the longest bull-market periods in modern economic history.
So how will the economists look back on 2018? With hindsight, it will probably be seen as a “game of two halves,” to borrow a footballing metaphor, in which the bull market roared ahead in the first six months, only to give way to forebodings of financial and economic hazard in the second. This was true certainly of the global economy, and no less true of the economies of the Arabian Gulf and the wider Middle East and North Africa region.
Sometime over the summer, the outlook for the world economy changed. For those who believe that the only fundamental that matters is the geopolitical context of economic activity, there were several key events in the middle of the year that brought about this change of mood, though it has to be noted that the International Monetary Fund, habitual global realists, had been warning about increasing fragility in the world economy since the begin of the year.
If there was one single event that spooked the global economy, it was probably the decision by US President Donald Trump to impose serious trade tariffs on China in July. The $250 billion of levies on imports into the US showed that Trump was not bluffing when he said earlier in the year that “trade wars are good, and easy to win.”
The prospect of trade hostilities between the two biggest economies in the world was the constant theme of the second half of the year, overshadowing meetings of the G7 and, later, the G20. Analysts calculate that a protracted dispute would knock several basis points off global growth figures, which already look fragile — for other reasons — next year.
If there was one single event that spooked the global economy, it was probably the decision by US President Donald Trump to impose serious trade tariffs on China in July.
Frank Kane
The economic wellbeing of the US and China — which some analysts have called “Chimerica” — is the crucial factor in global economic health. The US, which enjoyed what Trump called “the greatest economy in the history of our country” in the first half of the year, looks decidedly jaded at the end of 2018, as the one-off stimulus from the president’s tax cuts began to wear off. Most experts agree the US will not hit the 4 percent GDP growth level again in the foreseeable future.
Financial markets — enjoying record performances for the first half of the year — took a while to register this new pessimism, but when they did they reacted conclusively. By the end of the year, Wall Street had given up all the gains of 2018 and more, making it the worst year for stock markets since the financial crisis.
The other half of the US-China relationship was also in trouble. China’s economy has been the engine that drove global growth for the past decade, but here again the forecasts for next year are not reassuring. It may be India that the world will have to rely on in 2019.
Against this backdrop, the Middle East looks an uncertain place. The geopolitical stresses are there as ever. Round about the time Trump was opening the initial salvoes in trade wars, he was also looking to reimpose sanctions on Iran over its nuclear program, another big uncertainty for financial markets.
The oil market — still by far the most important factor in the region’s economic calculus — began the year brightly but by the end was in the doldrums. Brent hit $85 per barrel in October, but lost nearly 40 percent of that in just a few weeks. Reduced OPEC production — as agreed at Vienna in December — and falling prices are not a reassuring prospect for regional economic policymakers.
Saudi Arabia’s financial markets reflected the “two halves” theme as well. The Tadawul was the best performing stock market in the world in the first six months, but those gains were impaired in the second. Still, a rise of more than 7 percent over the year was a testimony to official support for the Kingdom’s capital market reform program.
By the end of the year, Saudi Arabia was able to announce the biggest budget in its history, and forecast a further tranche of reform initiatives for next year. It was a strong way to end a problematic 12 months.
- Frank Kane is an award-winning business journalist basedin Dubai. Twitter: @frankkanedubai
