Even if there were no particular novel threats emerging, this would be a challenging time for the global economy. We have had a long, slow expansion
Even if there were no particular novel threats emerging, this would be a challenging time for the global economy. We have had a long, slow expansion and now have a background of weak global growth and relatively high levels of debt. The debt inhibits fiscal policy, while in many places monetary policy never recovered from the extreme measures taken to address the global financial crisis. We saw evidence of this last week when the European Central Bank cut its policy rate to -0.5% and promised to start buying bonds again. These are signs of significant worry and also demonstrate the limits of these tools. So, even without shocks, things would be tenuous.
And then there are the shocks. At the forefront are trade shocks. The mounting tariff war between the world’s two biggest economies looms very large. Not only does it affect the United States and China directly, but it appears to be having important spillover effects into Europe as well. There are also dangers of spreading trade conflict, with U.S. threats to hike tariffs against other trading partners. Trade relations seem calm for the moment between the United States and Japan; the Trump administration just notified Congress of a preliminary deal that should forestall threatened auto tariffs. But the threat of new trade conflict with Europe is real, extending from a fight over Airbus subsidies to threatened national security tariffs on autos.
Beyond U.S. application of tariffs, there is the impending Brexit deadline, in which one of the world’s larger economies – the United Kingdom – is scheduled to break away from the European Union. And South Korea and Japan have become embroiled in an increasingly acrimonious dispute.
Beyond these policy-induced shocks, there are more conventional shocks, such as conflict in the Middle East that could restrict oil supplies.
Despite all of these threats, it’s worth keeping in mind that most major forecasts continue to predict slow and steady growth for 2019 and into 2020. While we are seeing more pessimism and obstacles in the manufacturing sector, most major economies have tilted heavily to services trade, which may limit the damage.
Disclaimer: Provided for informational purposes only. Flexport does not guarantee, represent or warrant any of the statements in this answer because they are based on our current beliefs, expectations and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur.
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This article is from Inc.com