Since the global financial crisis of 2008, many investors around the world have adopted a more protective stance in their market positioning strategies. This approach has paid-off handsomely, as global stock benchmarks continue to press forward to new record highs. But the macroeconomic framework is always cyclical in nature, and consumers must be aware of the risks and advantages which are present in finance at any given time.
Overall, the state of the global economy remains strong. But there are growing debt risks developing, which could begin to slow growth prospects in the years ahead. And when we add this to the possibility of enhanced trade wars between the U.S. and China (the world’s two largest economies), those risks only seem to magnify in scope. For these reasons, we will take a look at the broader health of the world economy as we head into 2019.
At the growth level, investors and consumers should understand that the global economy is essentially operating near its heights. Expectations for global GDP growth from the largest banks are coming at near 4% for the current year. This would be the best performance since 2012 (if realized), and it should be remembered that this followed a period of relatively tepid growth. Ultimately, this suggests that the current expansion throughout the world economy is near its historical highs.
In addition to this, the pace of global growth looks to be relatively widespread and balanced. All of the major economic regions are expected to post solid gains for the current year, and this is expected to continue well into 2019. This is true in the U.S. the Eurozone, developed Asia (Japan), and Emerging Asia (China). All combined, these driving factors are expected to generate growth rates of roughly 4% for the world economy as a whole (both in 2018 and 2019).
Of course, no economic forecast can be viewed as valid without a mention of the potential risks involved. These risks are essentially two-fold, encompassing trade war tensions, and rising global debt levels. Trade war tensions tend to get most of the market’s attention. But this fails to assess the impact which global debt levels could have in the future. Currently, global debt is up by almost $150 trillion and has shown tremendous expansion over the last 15 years. This is critical because sizable interest payments can negatively impact investment in other areas of the economy (and this stifles long-term growth figures over time).
Overall, this shows us a more balanced picture of growth for the world economy. But, as we can see here, there are growing risks involved which go beyond the headlines shown for the seemingly-constant trade war tensions between the U.S. and China. These are all factors which will continue to have an impact in the years ahead. The trends remain positively, but these potential negatives could weigh on economic projections if we fail to properly address them going forward.
Article By: Ric Cox