Page 17 - Bloomberg Businessweek - November 19, 2018

Bloomberg Businessweek The Year Ahead 2019 Introduction

▷ The IMF foresees healthy global growth despite what it politely calls “policy uncertainty”

Judging by recent headlines, the one might expect given the minicrises plus investment income—will widen to
global economy is on a wild roller breaking out left and right. Strong 3.4 percent of gross domestic product
coaster that’s going mostly down- growth in the U.S. isn’t only good for in 2019, up from 3 percent in 2018. That
hill. There are Brexit, trade wars, Americans; it’s good for workers in would be the biggest gap since 2008.
Italy’s fight with the European Union, countries that produce goods and ser- President Trump tends to regard
renewed U.S. sanctions on Iran, a vices for sale to the U.S. In fact, the U.S. the U.S. trade deficit as evidence of
Chinese debt bomb, jittery stock mar- is largely responsible for keeping global foreign malfeasance. He could impose
kets, intermittent capital flight from growth ticking along at an even pace even more tariffs, which would harm
developing nations, and more. despite the slowdown of many other both trading partners and American
The data tell a calmer and happier major economies. consumers. That’s the kind of “pol-
story. According to the International On the other hand, the U.S. outper- icy uncertainty” the IMF warned of
Monetary Fund, the global economy formance has downsides. It puts pres- in its outlook. At the Bloomberg New
is on track to grow a healthy 3.7 per- sure on vulnerable nations such as Economy Forum in Singapore in early
cent in 2018. That’s exactly how fast Argentina and Turkey, which rely on an November, 68 percent of the 400 dele-
it grew in 2017. The IMF’s forecast for inflow of foreign capital. Global inves- gates identified trade war as the biggest
2019? Again, 3.7 percent. It’s a plateau, tors, who put their money wherever story for 2019; former U.S. Treasury
all right, but a high plateau—call it the they think it will earn the highest Secretary Henry Paulson warned of an
Altiplano of economics. return, are more likely to choose the “economic iron curtain” if the U.S. and
The contrast between the nega- U.S. over other countries if it’s thriv- China don’t reconcile.
tive daily buzz and positive underly- ing. Meanwhile, the Federal Reserve is Democrats’ capture of the U.S.
ing conditions is sharpest in the U.S., raising short-term interest rates to keep House of Representatives in the mid-
where the expansion of the world’s the U.S. economy from overheating, term elections on Nov. 6 won’t mod-
largest economy has actually strength- making the nation’s yields increas- erate America’s pugnacity on trade
10
ened as it’s lengthened: Annualized ingly attractive. To compete for funds, for two reasons: Trump can act with-
growth rates in the two middle quar- vulnerable countries with chronic out Congress on trade, and a lot of
ters of 2018 were 4.2 percent and trade deficits are forced to raise their Democratic lawmakers agree with him
3.5 percent. In October alone, the own interest rates, which suppresses anyway. On the plus side, the Congress
economy generated 250,000 jobs. growth. Bloomberg Economics fore- that sits in January is considered a
That kind of growth isn't sustainable casts, for example, that Turkey’s econ- strong bet to ratify the United States-
in a rich nation with a slow- growing omy will grow just 0.8 percent in 2019. Mexico-Canada Agreement, Trump’s
workforce and lackluster productivity There could be political problems moniker for the successor to the North
growth. Still, if the U.S. makes it past as well. The U.S. trade deficit is widen- American Free Trade Agreement.
June without a recession, the uptrend ing because the country’s appetite for For economists, the most important
will exceed 120 months. That would imports is growing faster than foreign date on the 2019 calendar is March 29,
surpass the 1991-2001 expansion to demand for American products and when the U.K. is scheduled to leave the
become the longest since at least 1857, services. The IMF projected in April European Union after 46 years. Brexit’s
the start of records maintained by the that the negative balance on the U.S. impact on the U.K. economy will have
National Bureau of Economic Research. current account—the broadest mea- a lot to do with decisions made before
So the outlook for 2019 is better than sure of trade in goods and services, then on economic integration between
the U.K. and the EU. The worst out-
Still Growing come would be a chaotic “no deal”
When current expansion began exit. In August, Matt Hancock, the U.K.
health secretary, told drugmakers to
December ’89 China stockpile medicines in the country in
December ’91 Australia case there’s no deal and imports are
November ’96 India delayed. It’s more likely that some kind
December ’08 South Korea of agreement will be struck. Bloomberg
January ’09 Germany Economics predicts the U.K. will grow DATA: ECONOMIC CYCLE RESEARCH INSTITUTE
June ’09 U.S. 1.6 percent in 2019, a bit faster than
August ’14 Japan the estimated 1.3 percent this year.
October ’14 Italy One way or another, Brexit “is going
October ’16 Brazil to be extremely difficult,” says Duncan