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Shelter from the storm in 2019

19 0 0
14.01.2019

BRUSSELS - What would have to happen for this to be a tranquil year economically, financially and politically? Answer: a short list of threats to stability would have to be averted.

First, the trade war between the United States and China would have to be placed on hold. In November and December, financial markets reacted positively to each hint of a negotiated settlement and negatively to each mention of renewed hostilities — and for good reason: Tariffs that disrupt trade flows and supply chains do global growth no good. And, as we know, what happens in financial markets doesn’t stay in financial markets: outcomes there powerfully affect consumer confidence and business sentiment.

Second, the U.S. economy will have to grow by at least 2 percent, the consensus forecast incorporated into investor expectations. If growth comes in significantly lower — whether because the sugar high from the December 2017 tax cuts wears off, the Federal Reserve chokes off the expansion, or for some other reason — financial markets will move sharply downward, with negative implications for confidence and stability.

Third, China will have to avoid a significant intensification of its financial problems. Successfully managing a corporate debt load of 160 percent of GDP requires not just selectively restructuring bad loans, but also increasing the denominator of the debt-to-GDP ratio. With........

© The Japan Times