Geopolitical recession: risks with global impact in 2019

geopolitical-recession

The year began with many questions for financial analysts who, in their majority, have pessimistic economic forecasts for 2019.

What will happen to the global and the European economy?

The list of uncertainties is a long one and the factors that will mark all things are different. There are a number of external risks that should not be ignored. Following the Davos Forum, nearly 30% of leaders believe that the rise of the world economy will slow in the next 12 months. The new risks are due to trade conflicts, Brexit and climate change.

TRADE WAR BETWEEN USA AND CHINA

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The tension between these two countries can lead to China’s recession, which would also have repercussions on the EU’s large export economies, first on Germany. There is data that makes us believe that both in the US and China economic growth will stagnate: for example, infrastructure investment has fallen in China over the past two years, and the US industry is lacking in building materials, which leads to drop in US sales and roll-out.

BREXIT

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The UK exit process in the EU remains so far chaotic and uncertain. The major risk in this case is for Germany: The German Institute of Economics warns that Germany’s GDP will fall by 0.5 percentage points in the case of a tough Brexit.

Depending on the form Brexit will take, the Bank of England may increase the interest rate, similar monetary policy decisions being also envisaged for the central banks of Canada, Brazil and Russia. On the other hand, the European Central Bank will keep its key interest rate at least by 2020.

EMERGING MARKETS

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In 2018, economic expansion in emerging countries slowed down to 4.8%, and the trend will remain, so analysts expect an increase of 4.6% in 2019.

The processes that will generate stagnant economic growth are related to the slowdown in the global economy and commercial activity. Moreover, the tightening of financial conditions, the volatility of commodity prices, as well as political divergences in South America, could limit the flow of capital.

Monetary and fiscal policy mistakes, as well as trade tensions, are the main threats to the global economy in 2019. At the same time, trade disputes between the world’s great powers could quickly expand and get out of hand.

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