22 October 2019

What to Watch in the Final Ten Weeks of 2019

2019 has already been an extremely eventful year and there are still ten weeks remaining before 2020 arrives, ushering a new decade that will follow what has been a very challenging decade for much of the world.  Economically, it was clear from the onset that 2019 would be a year of slower economic growth and higher levels of economic risk, and both of these predictions became reality over the course of the year.  Likewise, this year has been characterized by a higher degree of uncertainty surrounding global trade and investment, with trade disputes intensifying and spreading.  On the political front, there has also been a great deal of uncertainty and this has added to the degree of risk facing the world this year.  Still, much more can happen before this year is over and the final ten weeks of 2019 will certainly see new developments that will need to be monitored and assessed.


An Economic Slowdown or Meltdown?

Economically, the slowdown in global economic growth that began in the second half of 2018 is forecast to continue over the remainder of this year.  For developed economies, this slowdown has thus far been manageable, but there are significant downside risks facing developed economies over the final part of 2019.  In the United States, growth is forecast to continue to slow, although GDP growth is expected to remain near 2%.  The outlook for Europe is significantly worse, with major export-dependent economies such as Germany and Italy facing continued recessionary risk in late 2019. Likewise, Japan’s economy is unlikely to generate significant growth in the months ahead.  Furthermore, once robust developed economies such as Canada, South Korea and Australia are also likely to record relatively weak growth rates in late 2019.

For emerging markets, there is also a great deal of concern as the final ten weeks of 2019 approach.  We have already seen that China’s economy continued to slow in the third quarter of this year and there is a strong possibility that, without a trade deal with the US, growth in China will fall below the government’s target of 6%.  India’s poor performance in the first half of this year has also raised concerns that the Indian economy will struggle to return to the 7-8% growth rates that it had recorded in previous years.  Outside of Asia, most emerging markets will continue to struggle to generate higher rates of growth due to low commodity prices and weak demand in key export markets. The question for most emerging markets in late 2019 will not be whether or not they can generate higher rates of growth, but rather, how fall will economic growth fall.


Trade and Investment in Jeopardy

Many of the economic troubles that will continue to bedevil most leading economies in late 2019 stem from the uncertainty surrounding global trade and investment.  There are two main reasons for this uncertainty.  First, demand levels in most leading export markets are simply much weaker at the moment, reducing the prospects for growth for exporters.  Second, the spread of trade disputes, most notably the one between the United States and China, has led to a proliferation of trade barriers in recent years.  While the US and China appear to have stopped the escalation of their trade dispute in recent weeks, there remains a distinct possibility that it will worsen again before the year is over.  

Likewise, the potential for a full-scale trade war between the United States and the European Union is likely to rise in the coming weeks, while the eventual trade and investment relationship between the United Kingdom and the EU could be decided during this period. Meanwhile, other trade disputes such as the one between Japan and South Korea could still worsen in the coming weeks. Finally, falling levels of business and investor confidence are expected to continue to weaken the outlook for trade and investment, adding to the already considerable pressures facing businesses and investors operating outside of their home markets. 


Political Uncertainty

To say that the past few years have seen a higher degree of political uncertainty would be an understatement and there is no reason to believe that the final ten weeks of this year will be any different.  For example, the growing rivalry between the world’s two leading powers, the United States and China, is likely to intensify as both countries face major political questions at home.  In the US, the Trump Administration continues to bounce from scandal-to-scandal, with the US president now facing an impeachment investigation, while the opposition Democrats scramble to find a candidate to challenge him in 2020.  In China, the escalating unrest in Hong Kong is likely to force Beijing to make a painful decision on whether or not to intervene in this unrest in the coming weeks, a decision that Beijing ultimately hopes to avoid.

There will also be a great deal of political uncertainty outside of the US and China in the final ten weeks of this year.  In Europe, the recent deal on Brexit means that either the United Kingdom will withdraw from the European Union later this month or there will be yet another extension of Brexit negotiations.  In the Middle East tensions will remain dangerously high across the region as the potential for a conflict involving Saudi Arabia and Iran rises, while Turkey attempts to create a safe zone in northern Syria.  Meanwhile, there will be a number of interesting elections in the final part of this year, including national elections in Argentina (which could return power to that country’s left-wing), Spain (its fourth national elections in four years) and Algeria (to replace long-time President Abdelaziz Bouteflika).


Opportunities and Risks

While the uncertain outlook for the global economy, international trade and political stability indicate that risk levels are rising all around the world, there will also be a number of opportunities for growth in the final stage of 2019.  For example, even with the forecast slowdown in the United States, North America will remain a growth market in the coming months.  Likewise, even as China, India and other Asian economies have recorded lower rates of growth in recent months, this region will remain the leading contributor to global growth for the foreseeable future. Furthermore, while the near-term outlook for trade, investment and the global economy is less than ideal, many leading economies and markets are forecast to provide significant opportunities for growth over the final part of this year.

While it is crucial that consumers, businesses and investors remain confident in the face of rising levels of uncertainty, it is also imperative that they are aware of the risks that they face.  For the moment, the greatest near-term risk is the fact that nearly every single large economy in the world is in the midst of a slowdown, as was foreseen for some time. Furthermore, the system of international trade and investment that has been cultivated over the past few decades remains in serious jeopardy and the developments of the coming months will play a significant role in the longer-term outlook for trade and investment. Politically, much can happen in the coming weeks, and the fact that the world’s two most powerful countries are experiencing a high degree of uncertainty will add to the level of political risk during this period.  Likewise, in many areas of the world, security risk levels will also remain dangerously high.  Altogether, there is much to watch on the political and security fronts over the remainder of this year.

The final ten weeks of this year will be pivotal in answering many of the key questions facing the global economy and international security in the years ahead.  For the global economy, the big question is whether or not we are in the midst of a normal slowdown or if we are on the brink of a major downturn. For trade and investment, the threat of an escalation of the trade war between the United States and China and the proliferation of trade barriers makes this a crucial period for the future of the globalized economy.  For politics and security, the next weeks are likely to be a roller coaster as the leading powers face internal threats and as security risk levels rise.  In summary, many of the decisions taken in the final ten weeks of this year will be pivotal in determining the direction of the world in the years and decades ahead.