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Global development
12 Jan  2019 816

Global economy faces risks in 2019

Growth recession in China, increasing political chaos in the US, Brexit and heightened geopolitical tensions promise 2019 will not be easy for global economy. 

According to The Guardian-published Harvard professor Kenneth Rogoff’s economic forecast, investors will face the most prominent risks in areas that seemed steady.

Significant Chinese slowdown is one of them. The Chineese economy transits from export- and investment-led growth to domestic consumption-led growth. Its previous export expansion pace gets more and more complicated. Encouraging growth through residential real estate development can be a challenge for the financial system if families will not show high interest in investing in housing.

If China’s growth recession proves to be significant, it hits the rest of Asia as long with Europe, especially Germany. The trauma to financial markets and politically sensitive exports would eventually consequent in US economy.

Significant rise of global long-term real interest rates is risk that is even more traumatic. It might happen if so-called Fourth Industrial Revolution starts to affect growth much faster than is currently anticipated. Positive though for global economy it might greatly strain lagging regions and groups.

The general grim scenario may lead to overturn of the current market-friendly economic policies across the world.

‘Most consider today’s lower long-term interest rates allow advanced economies to sustain significantly more debt than they might otherwise.  If policymakers rely too much on debt (as opposed to higher taxation on the wealthy) in order to pursue progressive policies that redistribute income, it is easy to imagine markets coming to doubt that countries will grow their way out of very high debt levels. Investors’ scepticism could well push up interest rates to uncomfortable levels,’ - outlooks Kenneth Rogoff.

 Increasing political chaos in the US, Brexit, Italy’s shaky banks and heightened geopolitical tensions are among other significant risks. However, they do not make the outlook for global growth necessarily negative. ‘The 2019 could turn out to be another year of solid global growth. Unfortunately, it is likely to be a nerve-racking one as well,’- resumes Kenneth Rogoff.

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