Slowing growth could pose risks for the global economy in 2019, as experts predict flattening or declining rates for economies ranging from the United States to Europe to China. High levels of corporate and sovereign debt in the aftermath of the 2008 financial crisis raise questions about how governments and corporations can respond to such slowdowns.
However, “slowing down in China is not a collapse,” noted Fang Xinghai, Vice-Chairman of the China Securities Regulatory Commission, in a session on the opening day of the World Economic Forum Annual Meeting 2019. Economic experts predict 6% growth in China for 2019, which is still relatively strong. Fang noted that declines in overheated sectors, such as real estate and infrastructure, could provide useful correctives for the market.
Recent trade disputes between the United States and China raise a number of questions about declining exports for both countries. “The trade war has come as a benefit in disguise,” countered Jin Keyu, Professor of Economics, London School of Economics and Political Science. Jin argued that the dispute has provided external pressure on China to make needed reforms and open its economy.
For example, much of China’s credit remains in the financial sector or goes to state-owned enterprises. Implementing reforms to make credit more available to Chinese households could help unleash the “latent dynamism of the private sector,” Jin explained. Greater consumption from Chinese households could, in turn, offset declining consumer demand in other nations – one potential bright spot for the global economy.
Another source of risk involves high levels of government debt in the United States. “We have a real problem in terms of the quantity of debt we have to sell to the world over the next several years,” said Ray Dalio, Chairman of Bridgewater Associates.
Historically, China has been a major international buyer of US debt, but the recent trade dispute has raised questions about bilateral relations. Fang predicted that the political dispute would not affect the Chinese government’s interest in buying US debt. “I don’t think China will in any way significantly reduce its investment into the US bond market,” he noted.
How will central banks respond to slow global growth?
Experts predict that easing monetary policies and fiscal reforms could offset the slowdown, but with interest rates still at post-financial crisis low points, there are questions about how much room central banks have to manoeuvre.
Alex A. Weber, Chairman of the Board of Directors at UBS, predicted one or two rate hikes from the US Federal Reserve in 2019 but added that aggressive tightening would be unlikely, given the softness of the global economy. “I think monetary policy normalization is not an issue for this cycle. It’s an issue for the next cycle,” Weber noted.
Soft but stable growth characterizes the general outlook for 2019, but experts noted that a range of serious risks still exist on the periphery, such as a “hard exit” of Britain from the European Union, climate change, and cybersecurity.
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