A growing sense of uncertainty seems to have dominated the global economy in 2018. How do you explain it?
2018 was a fascinating year. In the early months, all global macroeconomic indicators continued to suggest an excellent climate. The eurozone was brimming with confidence. Then the clouds gradually rolled in and dampened the atmosphere. This sudden reversal came about from two main sources of uncertainty.
The first pertains to a shift in the economic climate—when an economic cycle reaches a certain level of maturity, as is the case in the United States where the current cycle has lasted since 2009, we start to wonder how much life it has left. On that side of the Atlantic, unemployment is now so low that companies are struggling to fill vacancies. Thus, the rising fears of inflation beginning in early February. Next—and this was a fundamental turning point at the end of 2018—expectations of slowed growth took the upper hand. Some economies were particularly hard hit. In Germany, for example, companies have grown increasingly concerned about their declining export orders. It is no accident that fears of rampant inflation and slowed growth coexist—this translates as the nervousness of investors at this advanced stage in the cycle.
The second source of uncertainty is exogenous and contextual. In 2018, the threat of a trade war between the United States and China reached a fever pitch. However, it should ultimately produce a positive result. In a global context of slowed growth, the two countries have every reason to reach an agreement in 2019, which would bolster corporate morale and consumer confidence. As far as Brexit is concerned, the March 29 deadline may be pushed back, but only by a few weeks or a month at most. For that reason, it remains difficult to give an opinion about international trade relations. The first half of 2019 should deliver some much needed clarity.