Page 18 - Bloomberg Businessweek - November 19, 2018

Bloomberg Businessweek The Year Ahead 2019 Introduction

Edwards, chief executive officer of the Tariff Damage
British American Business Council. Projected percentage change in level of GDP* of a serious trade war vs. no conflict
Europe will have more than Brexit U.S. China
to worry about in 2019. European
Central Bank President Mario Draghi, 0
who saved the euro in 2012 by vowing
to do “whatever it takes,” will complete -0.5%
his term in October, and the jockeying
to succeed him is fierce. In Italy, a pop- -1.0%
ulist coalition government is defying
EU demands to shrink the country’s -1.5%
projected 2019 budget deficit. Other 2018 2023
EU members, including Germany,
have violated deficit caps without seri- Chinese families, businesses, and gov- seeks a second term in 2019. He’s
ous consequences, but the European ernments. Nonfinancial debt has dou- pressing the central bank to worry
Commission is playing tough with bled as a share of GDP since 1998, to more about growth and less about
Italy. The leaders of the two populist 200 percent. If deleveraging threat- inflation— echoing Trump.
parties, the League and the Five Star ens to weaken 2019 growth too much, And so it goes, with nations’ fates
Movement, show no sign of backing count on the government to ease up influenced by both global and local
down. An angry standoff over deficits on its balance-sheet-cleansing cam- forces. In Brazil the outlook depends
could lead to Italy’s following the U.K. paign and spend enough to make sure on whether Jair Bolsonaro, a right-
out the EU’s back door, but that’s con- the economy grows at least 6 percent. wing former army captain, can get a
sidered unlikely and almost certainly Another growth lever China’s lead- grip on Latin America’s biggest econ-
won’t happen in 2019. Bloomberg ers can pull is to allow the yuan to omy when he takes office as president
Economics predicts Italy will expand depreciate, which makes Chinese on Jan. 1. He might take notes from
1 percent in 2019, continuing a long goods more competitive against those Indonesian President Joko Widodo, 11
trend of weak growth. It forecasts of rivals such as Japan and South another hardscrabble populist, who
Germany growing 1.7 percent. Korea. One U.S. dollar bought 6.9 yuan will run for a second term in 2019. The
China’s outlook for 2019 sparkles in early November, up from 6.3 yuan rupiah cratered along with other devel-
in comparison, with Bloomberg in April. But that strategy has its lim- oping nations’ currencies in 2018, but
*HIGHEST ESTIMATE, WHICH INCLUDES MARKET REACTION; DATA: INTERNATIONAL MONETARY FUND WORLD ECONOMIC OUTLOOK; BLOOMBERG
Economics projecting GDP growth of its. If the yuan breaches 7 to the dollar it partially rebounded as investors
6.4 percent. But that would be the low- in 2019, panic selling could result that recognized that Indonesia’s trade defi-
est figure since the lull following the would make the currency weaker than cit was a byproduct of investment for
Tiananmen Square democracy pro- authorities want. A weak yuan would growth, not just consumption, says
tests of 1989. A big factor is the Trump raise the burden of dollar-denominated Patricia Perez-Coutts, a lead portfolio
tariffs, which cover more than half of debt—and equally concerning, damage manager at Toronto-based Westwood
Chinese exports to the U.S. Another China’s ambition of making the yuan a International Advisors.
headwind is the government’s effort to global reserve currency on par with the In September 1998, Federal Reserve
shrink the pile of debt accumulated by dollar and the euro. Chairman Alan Greenspan said in a
Growth in Japan has been strong speech at the University of California
Central Banks Will Raise Rates in recent years, despite a lack of labor at Berkeley that “it is just not credi-
Levels implied by current market activity force growth. GDP grew at an annual ble that the United States can remain
China U.S. U.K. Japan Euro zone rate of 3 percent in the second quarter. an oasis of prosperity unaffected by
But Japanese governments have a a world that is experiencing greatly
habit of choking off their expansions increased stress.” The U.S. did man-
9/2018 9/2019 by raising taxes. Another hike in the age to avoid a recession then, and its
2.86%
2.82% sales tax is set for October. That and momentum is stronger now, not to
weakening export growth are two rea- mention that the stress in the emerging
sons Bloomberg Economics forecasts markets is lighter, says Nathan Sheets,
growth to retreat to 0.9 percent in 2019. a former U.S. Department of the
Asia’s growth champion is now Treasury official who is chief econo-
1.00%
India (which, to be sure, remains mist for PGIM Fixed Income in Newark,
far behind China in GDP per capita). N.J. Still, says Sheets, a big question for
-0.03%
-0.31% Prime Minister Narendra Modi needs 2019 will be “How does this divergence
to keep the expansion rolling as he play out?” <BW> �Peter Coy