Three megatrends are playing out in the global economy and serving to keep economic growth in check, according to research from Bloomberg Economics.
The analyst’s GDP tracker hit its lowest since the global financial crisis in the first quarter at 2.2% and is only expected to reach 3.1% by the end of the year, a stark contrast from the 3.6% achieved in 2018.
The analyst’s ASEAN, Australia & New Zealand economist Tamara Henderson pointed out that the International Monetary Fund has warned about “synchronised deceleration” of global growth which can in turn threaten social security. Risks on the horizon include a potentially-disappointing US-China trade deal and new US tariff threats on the EU.
Speaking at Moore Stephens’ Singapore Shipping Forum, Ms Henderson noted that part of the deceleration in growth is down to a move to a more mature phase of the growth cycle and to be expected. However, the trade war is further depressing that slowdown.
“A lot of people are thinking that the second half should be better but I’m a little more cautious that it might not be that much brighter,” she said.
For the US, Bloomberg is forecasting slower growth but at levels above the long-term trend, and higher inflation but still benign. For China, Ms Henderson points out that the growth forecast is at 6-6.5% with leading economic indicators pointing up; however, China production and exports are still under pressure. In Europe, Bloomberg sees slower growth in 2019 albeit gaining momentum in the second half. However, there are risk areas to be wary of, as Italy falls into recession, industrial activity sputters in Germany, and a no-deal Brexit looms on the horizon.
Ms Henderson listed the three megatrends playing out in the world economy as demography, the technology revolution and the new economy.
Under demographics, she noted a number of sub-trends. Firstly, slower population growth is a headwind to growth that is being re-enforced by anti-immigration policies. Secondly, ageing populations mean that more people are moving into those years where they need to think about retirement and saving for retirement. “That means that they are sucking away money, saving more and spending less and so economic growth is slower.”
The second megatrend of the technology revolution relates to rapid automation and transformation of business models. “This opens up global competition not just from your cohorts but through the internet as well, through robots and through artificial intelligence,” she said. “This rapid automation means a mis-match of labour and labour skills to what the market needs. This is not just a problem for the next generation. This means being more cautious about spending your income and, again, slower economic growth.”
On the third megatrend of the new economy, Ms Henderson explained that a world of slower growth, lower returns and greater volatility means that there is greater risk of not-so-great returns. “Our savers need to put away more money because they are not getting much return on those savings,” she said. Ultra-low interest rates are also re-enforcing the choice by business of capital over labour.
Slower growth intersects all three megatrends which is feeding a zero sum game, she added. Growth now will need to be taken from someone else’s share, hence the move towards more protectionism and nationalism. “This protectionism that we’re seeing today and hoping will end by the 2H of this year hasn’t happened in a vacuum and it might be here to stay,” Ms Henderson warned.
On the structural side of the equation, central banks are taking their foot off the accelerator – if not tapping on the brakes – as the global economy enters this mature phase of the cycle. Added to this the trade war with its taxes and redistribution of wealth effects mean that the market is trending weaker. Asked if there will be a tariff roll-back sufficient enough to turn the global economic ship around in the second half, Ms Henderson said she was pessimistic.
Oil prices are also not co-operating with favourable growth outlooks with supply factors underpinning prices, pitching oil prices as another headwind to growth.
Also presenting at the Moore Stephens seminar, John D’Ancona, senior analyst, divisional director – Dry Cargo, Clarksons Platou Asia, reminded the audience that freight markets pivot off three things: supply and demand to fundamentals, technicals and sentiment.
“The shipping markets at the moment have been hit very hard with overriding negative sentiment,” he said. “Is it a problem with trade? Do people actually want the cargoes? Yes they do – we’re moving nearly 12bn tonnes of cargo around the world.”
He added that underlying demand remains positive and that shipping is “pretty cheaply-priced” today. “I think the market has far more upside potential if you can strip away some of the uncertainties,” he said.
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