…the global economy may tank next year, but a more resilient oil market may shield us from much of the impact. Which is all for the better. For, given how addicted to oil export earnings the domestic economy is, full pass through from shrinking global output would hurt so much!
Across Europe, Asia and America, stock markets have gyrated wildly over the past couple of months. It has, accordingly, fallen on “analysts and experts” to hazard guesses about the underlying impulses behind each new market spike or trough. Just as important, though, is making sense of what all these mean for the global economy, in 2019. Even before stock markets got on the bucking bronco, however, consensus was that the fair was on its way out of town.
The International Monetary Fund. The Organisation for Economic Co-operation and Development. The World Bank. And a slew of leading central banks all have indicated slow global growth next year on account of tighter markets. It didn’t help the general outlook that China was already running out of steam anyway. Government there had found the brakes to the economy in its bid to wean domestic output growth off credit, much of which — especially from the shadow banks — was beginning to sour. But the Chinese government had barely kick-started the rise in consumer spending that was supposed to drive the economy’s pivot away from manufacturing for exports, before the new, nativist U.S. government put the kybosh on global trade.
Much has been made about the Trump administration’s contrarian reading of both global politics and economics (not to talk of the climate). Massive swagger notwithstanding, the Trump administration may not have successfully drained the swamp in Washington. But it surely is bent on drowning global trade under a flood of tariffs and non-tariff restrictions. And because global trade is that important for global output growth, the Trump administration hasn’t helped the outlook for next year. Still, there is a part of this conversation that is beyond the administration. Despite the administration’s blustery rhetoric, the current growth in the U.S. started in June 2009. In other words, the U.S. economy has grown non-stop for 114 months, back-to-back. The last time the economy was this perky was between March 1991 and March 2001.
Almost without fail, then, the punditocracy, in bringing up the business cycle, is forecasting a bust in the U.S. economy for 2020. That the economy will begin to decelerate next year, is a given within this context. The pro-cyclical policies of the Trump administration (tax cuts and spending boost) didn’t, alas give as much adrenaline boost to the economy as they were advertised to. But by widening the fiscal deficit — to more than 4.5 per cent of GDP next year — they’ve simply worsened the risks to the world’s leading economy. And, hence, to the world.
Latin America’s big economies moved down the populist path, where Andrés Manuel López Obrador’s citizen democracy has already signposted the dangers to come. For emerging markets that gorged on cheap dollar loans, especially those in which the corporate sectors earn local currencies, America’s rising budget deficit can only be a burden.
And Europe? Chugging along as usual. Brexit. Italian nationalists. Yellow vests blocking roundabouts in France. A crisis of political identity in Germany. Illiberal democrats in Central Europe. Russian miching mallecho at the region’s margins. And unresolved fiscal and monetary questions around the euro. These are some of the items in the region’s pushcart — weighty enough to keep it from getting past the checkout counter next year. In a sense, discussing likely economic outcomes for 2019, Europe — and especially the 19-member euro zone — feature no more strongly than would any sunk cost.
India, at the beginning of the year, had put in a decent shift, and was pushing to head the leaderboard for “fastest growing big economy”. Reforms at the margin, including the introduction of a unified goods and sales tax, promised more of such growth. But India’s growth never included an appetite for imports (except for energy), big enough to compensate for China’s deceleration, and, thus, to lend global growth the much-desired backup. That, sadly, was before the prospects of elections next year, and the recent loss of three regional polls forced the would-be juggernaut down a populist path. Now, more than ever, chances are of a train wreck in that part of the country next year.
Across emerging markets, the outlook for next year is decidedly more subdued. Latin America’s big economies moved down the populist path, where Andrés Manuel López Obrador’s citizen democracy has already signposted the dangers to come. For emerging markets that gorged on cheap dollar loans, especially those in which the corporate sectors earn local currencies, America’s rising budget deficit can only be a burden. A couple will, thus, have to contend with the pass-through to their local economies from the combination of tighter global financing conditions and a drop-off of global demand.
For the Nigerian economy, this is all about the outlook for oil prices. Here two impetuses matter. On the demand side, the concern over global warming, expressed both through increasing reliance on renewables for the generation of electricity, and the strengthening war against the internal combustion engine, should see demand for fossil fuels continue to fall off.
Frontier economies, especially commodity exporters, would be most affected by next year’s downturn. For the Nigerian economy, this is all about the outlook for oil prices. Here two impetuses matter. On the demand side, the concern over global warming, expressed both through increasing reliance on renewables for the generation of electricity, and the strengthening war against the internal combustion engine, should see demand for fossil fuels continue to fall off. That’s even before one factors in the feedback from falling global output. Supply doesn’t look like being sufficiently (and immediately) responsive to price signals next year — largely because most oil producers have dodgy finances and are disproportionately dependent on oil export earnings for much of their governments’ finances.
Ought we then worry about the damage falling oil prices could wreck on our economy next year? Not if the Iranian output is further locked out of the markets. Organisation of the Petroleum Exporting Countries (OPEC) members are already producing at, or near full capacity, so the chances of any member being able to step into the breach that Iran would leave are slight. Besides, at the margins, a few OPEC members may not be worth all of their current production levels.
In other words, the global economy may tank next year, but a more resilient oil market may shield us from much of the impact. Which is all for the better. For, given how addicted to oil export earnings the domestic economy is, full pass through from shrinking global output would hurt so much!
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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