The major forces shaping the 2019 global economy

By He Shuquan
0 Comment(s)Print E-mail China.org.cn, January 25, 2019
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The Yangshan Port Container Terminal in Shanghai on April 18, 2018. [Photo/VCG]

On January 19, the Shanghai Academy for Social Sciences released its annual report. The "Global Economy Situation Analysis Report 2019" found that the global economy achieved steady growth in 2018 amid conflict and major adjustment. 

Two days later, the United Nation's World Economic Situation and Prospects report for 2019 was released, revealing concern that the global economy is trying to function in a world fraught with uncertainty and challenges. 

On the surface, the global macroeconomic indicators remain favorable; however, they mask underlying risks and imbalances. What is more, economic growth is uneven, often not reaching the people that need it the most. In many countries, per capita income is continuing to decline and poverty rates remain high.

In seeking to predict the path to be taken by the global economy this year, there is no doubt that uncertainty will continue to be the main feature. However, amid the changes and new challenges lie new opportunities. Therefore, the major forces shaping the 2019 global economy will be as follow:

First, trade conflict between the two largest economies, China and the U.S., will have profound impact on the global economy. On the one hand, it will result in a significant trade and investment transition for countries with a similar export structure to China. 

On the other hand, considering the value added factor, the trade conflict between China and the U.S. will generate shocks to both upstream and downstream businesses, leading to the changes in the global political and economic patterns.

Second, the potential risks facing financial markets will worsen the prospects for global economic growth. In the Eurozone, uncertainty relating to global trade tensions and the turmoil over Brexit will take its toll, while the European Central Bank is likely to offer less support to growth as its quantitative easing policy ends. 

Growth in China is also expected to slow relative to 2018. Although the government will try to ensure a minimal slowdown, the impact of U.S. tariffs and the need to control debt levels are likely to result in at least a modest deceleration in growth in 2019. 

Emerging market currencies could come under periodic pressure from a strong U.S. dollar, but this effect is likely to lessen later in the year, when we believe it will become more evident that the American economy is slowing.

Third, declining oil price will increase uneven economic growth across the world. The increasing supply and decreasing demand for oil will lead to stockpiles. In addition, the unstable political situation in the oil production areas cast a shadow over the market. This situation, influencing oil importing economies and exporting economies in opposite ways, will lead to differing levels of economic growth.

The World Trade Organization logo is seen at the entrance of the WTO headquarters in Geneva, Switzerland, on July 24, 2015. [Photo/Xinhua]

Fourth, WTO reform will inject vigor to global economic growth. The U.S., EU, Japan, Canada and other WTO members have submitted proposals regarding its reform, which will surely occur. The reforms will help the WTO better serve in regard to its functions as a trade talks platform and promote improved global trade governance. 

Trade is an important path to economic growth and social development. The reform will fix the problems with the WTO that have been impeding progress.

Fifth, the digital economy and trade will be a new driver of the global economy. It will effectively propel economic growth, and improve production efficiency and consumption welfare. At the same time, it will help micro, small and medium-sized enterprises integrate into the global value chain, enlarging the employment and production effects in the world.

Anti-Brexit protesters hold flags outside the Houses of Parliament in London, Britain, on Jan. 15. 2019. [Photo/Xinhua]

Sixth, Brexit and other anti-globalization events will continue to create shocks for the global economy. The Brexit deal was vetoed by the U.K. Parliament last Tuesday. If the EU refuses to renegotiate a new deal, the U.K. will leave the EU without any trade deal in place on March 29, 2019. If no agreement can be made, it means there would be no 21-month transition period. If that were the case, consumers, businesses and public bodies would have to respond immediately to changes as result of leaving the EU. This will influence the U.K. and the global economy greatly.

These six forces are the most important in shaping the global economy in 2019, which will continue to see slow growth amid the uncertainty.

He Shuquan is a professor from School of Economics, Shanghai University.

Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.

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