MARKET. ANALYSIS. PROGNOSES. On a Global Level, the Main Event Was What Did Not Happen

Brexit continues to raise numerous questions for European and global business. Therefore, it’s no surprise that various presenters still bring it to the majority of international events and discussions.

How is business adapting or trying to adapt to the new conditions?

What challenges are waiting ahead? Will the divorce of the UK and EU redraw the international transport corridors, routes and change the tendencies of goods movement in logistic chains?

These and similar issues worry business and related structures.

We asked Daniel SOLOMON, an expert of International Euromonitor and a partner of JŪRA MOPE SEA magazine, to share his insights.

Daniel Solomon is responsible for macro-economic modelling and analysis. His areas of expertise include business cycles, financial markets and the macroeconomy, dynamic general equilibrium models and applied macro econometrics.  Daniel holds a Master of Science in Management/Finance from Queen’s University – Queen’s School of Business, Canada, a Master of Arts in Economics from McGill University, Canada and a Ph.D. in Economics from the Université de Montréal, Canada.

https://lt.linkedin.com/in/bernarddanielsolomon

How will Brexit affect business? What challenges are waiting for business?

Brexit will mostly affect the UK economy and companies that have a strong presence in the UK. Even then, for UK exporters, the extra costs due to extra tariffs or barriers in trading with the EU are likely to be heavily offset by further depreciation of the British pound. In the domestic UK market, sales for different consumer goods categories could decline by 1.5–4.5 % in real terms if no trade deal is reached. For companies that do not have a major presence in the UK market, the impact of Brexit is minor.

Which of the last year’s decisions/events were crucial for the European and global economy?

The key event for Europe last year was the victory of the strongly pro-EU Emanuel Macron in the French presidential elections. This eliminated the risks of France exiting the EU and the Eurozone over the next five years, and has set up a strong basis for further measures to reinforce the EU through a European Monetary Fund and a partial fiscal union. There are two key remaining problems on the horizon for the EU over 2018–2019:

  • Dealing with a weak Italian economy and government. Italy leaving the Eurozone is highly unlikely at this point, but even in the best case scenario Italy will get a very fragile coalition government and an economy with big structural problems.
  • Resolving political governance disputes with Eastern European countries such as Hungary and Poland and their illiberal democracies. Given the importance of good governance to the mission of the EU, this could ultimately fracture the EU if not handled properly.

On a global level, the main event was what did not happen: the US President Trump did not destroy the existing global geopolitical order. NATO is still alive with US backing, US-China relations have stayed reasonable, though recent US tariffs could provoke a limited trade war, and global growth accelerated despite the initial concerns about Trump’s policies.

Some experts forecast a crisis in 2018, which will be even stronger than previous ones. Should we really be afraid of that and wait for the upcoming crisis?

A global crisis is possible in any given year, but it is unlikely in 2018. The global economy has strengthened since 2016, especially the Eurozone. China remains vulnerable due to high debt levels, but the debt burden has stabilised in 2017 and the Chinese government has a lot of fiscal space for bailouts in case of a banking crisis.

The Korean situation is a big wild card. A war would push the Asia-Pacific economy into a crisis with significant global spill-overs. However, given the prohibitive costs to North Korea and the US’ Asian allies, such a scenario isn’t probable: we assign it a 2–7 % probability in 2018.

In our current outlook the top 3 risks to the global economy in 2018 are the following: a stronger than expected stagnation in advanced economies’ productivity growth, accompanied by a stock market correction and greater protectionism, a slowdown in emerging markets and China’s hard landing. Any one of these scenarios would reduce the annual global GDP growth by 1–1.5 % over the next 3 years. Each of these scenarios has a probability of around 5–15 % in 2018 in our global outlook.

Thank you for your insights.

 

The magazine SEA has been published since 1935
International business magazine JŪRA MOPE SEA has been published since 1999
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The magazine JŪRA has been published since 1935.
International business magazine JŪRA MOPE SEA has been
published since 1999.

ISSN 1392-7825

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