The global risks that await us in 2019 - LEVENT YILMAZ

The global risks that await us in 2019

As 2019 approaches, almost everyone is curious as to what awaits us in the new year. As this is the case, people have started to search for answers in this regard. In fact, I have been writing in detail about this matter for a while. In that sense, perhaps this will constitute repetition for those who follow my column regularly but since this is an important matter, it will be beneficial to reiterate the risks of 2019 that were emphasized by Bloomberg’s report prepared this week.

Trade wars and the EU’s state will be determining factors

According to Bloomberg, the biggest risk for 2019 is the trade wars between the United States and China. The report predicts that if U.S. President Donald Trump imposes all the sanctions that he has mentioned to date, China’s economy will slump by about 1.5 percent in 2019.

It appears that the other important matters are centered on the problems within the European Union. The Brexit issue especially is still one of the most important topics on the agenda. The possibility that this exit process may be actualized without an agreement brings about quite serious problems. If the agreement does not pass through parliament, it may initiate a major political crisis. Moreover, the British Central Bank itself stated that an exit without an agreement could cause a more serious economic crisis than that of 2008.

Another matter that could spiral into the EU’s “unity of union” problem is the relations with Italy. As you might recall, the EU rejected Italy’s budgetary proposal and still has not approved it despite insistence from the Italian side. It's been speculated that this incident, which is a first in the history of the union, could create a “domino effect” within the bloc.

Let’s make an addition here. We can say that many political European actors are going to be eliminated from the arena throughout 2019-2020. We must be prepared for street protests in many countries, starting from the demonstrations in France.

The Fed is going to be the biggest risk

I believe the U.S.’s Federal Reserve System (Fed) policies will be one of the most debated issues in 2019. Moreover, we should closely observe the tension between Trump and the Fed. I would like to draw your attention to a calculation published in May 2018 by the Fed in a report titled “Foreign Effects of Higher U.S. Interest Rates.” According to this calculation, if the Fed hikes interest rates by 100 basis points, this pulls down the growth rate in developed economies by 0.5 percent, and by 0.8 percent for developing economies. Economists have been predicting for a while that the Fed is going to hike interests between 75 to 100 basis points. However, after the latest developments, rumors that the Fed may slow things down have started to circulate. Managing Director and Chairwoman of the International Monetary Fund (IMF) Christine Lagarde stated that Fed should slow interest hikes down by highlighting the fact that its decisions impact many economies. Whether the Fed continues interest rate hikes or the U.S. economy enters a recession, we should be prepared for downward pressures on growth numbers.

What should we do?

Some indicators imply that the U.S. may experience an economic lull. This may result in Trump implementing harsher policies because he constructed his entire strategy upon the economy. In this respect, we should observe the trade war between the U.S. and China and his policies targeting regions with oil resources. The EU is our biggest trade partner. It is clear that we will need a more flexible foreign trade strategy in case of a slowdown in the EU. If we consider our young population, we should be even more insistent for growth, which is pressured by the negative atmosphere of the global economy.

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