The New Year started with a series of blockbuster headlines. Climate change impacts were being keenly felt through unprecedented fires and devastation in Australia; the US President’s impeachment by the House of Representatives was being passed onto Congress; a new, unknown virus was catching some attention in the Chinese industrial province of Wuhan; the US and China were ironing out an initial trade deal; the UK was preparing for Brexit within a month; and the US faced an important election year, with unpredictable outcomes.
General fragility in the world economy linked to the accumulation of debt, low productivity growth, weak investor confidence levels, an upcoming election campaign in the US, Brexit in the UK, continued climate change disruptors and volatile Middle East effects on oil prices, as well as potential trade wars with no multilateral dispute settlement system in place to resolve them due to the US’s unilateral action, continued uncertainties in Hong Kong and the slowdown of the Chinese economy will continue clouding the outlook. The systemic risks remain very real in 2020, and tensions are unlikely to be resolved anytime soon. Gold prices are rising for this very reason. The inverted yield curve in the US also illustrates genuine concerns in the medium to long-term.
Global leaders embrace sustainability, cautious optimism and a new economic order for 2020. The feeling of an integrated and interdependent yet increasingly polarised world was well encapsulated by the theme of the World Economic Forum’s (WEF) January 2020 meeting at Davos, “Stakeholders for a Cohesive and Sustainable World,” which saw over 3,000 global leaders convene to discuss sustainability.
Slowdown in the global economy will ripple across most markets. Given the context of uncertainty from a geopolitical perspective in the Middle East, from a trade perspective at the WTO, and the US-China and transatlantic tit-for-tat relations, as well the continued slowdown in China, a reversal towards protectionism and potential financial crisis in the US market, the global economic forecasts by the World Bank and IMF have been revised downwards.
Some critical structural weaknesses in the global economy emerging according to recent research by the World Bank (Global Economic Prospects Report; January 2020). A significant issue is the accumulation of debt, both in advanced economies and advanced emerging economies — another structural issue related to the slow update of productivity growth, particularly labour productivity. A final concern is a reliance on G20 markets which are at a high risk of slowdown.
Complications to supply chains management are rooted in the damage caused to China from the US efforts to divert trade toward other markets, and the rise in protectionism. New protectionist measures affected around $800 billion of goods during the period 2013-17 and rose to over $1 trillion in 2018. The recent US-China first trade deal is fragile and unsustainable.
The year will be marked by a frenzy of trade negotiations. In Africa, the Africa Continental Free Trade Area (AfCFTA) will enter into force for trade in goods, while ongoing negotiations in the remaining areas continue. The UK, EU and US will be actively seeking bilateral agreements with partners. East Asia is likely to also further consolidate the gains from existing trade deals by improving and monitoring the benefits of the agreements in place while continuing its agenda in aligning standards.
Environmental concerns will remain high. Advanced economies appear to be increasingly affected by the impact of climate change, while many developing countries will continue to be ravaged by man-made and natural disasters. While technology and innovation are being introduced in an effort to build resilience and mitigate some of the impacts, the human, social and economic costs are only likely to escalate.
In 2020, technology giants will face increasing scrutiny by consumer groups and regulators, as well as tax authorities. The Organisation for Economic Co-operation and Development (OECD) is tasked with coming up with proposals by the end of the year to combat transfer pricing and ensure that corporations pay taxes in the country of sales. The outcome and adoption of the OECD proposals will have a definite impact on e-commerce post-2020.
The hype around blockchain will become a reality in 2020. In January, the WEF announced “the first neutral and public traceability platform” capable of visualising blockchain-based supply chain data from multiple companies and sources. Facebook is expected to launch its Libra cryptocurrency in 2020, despite setbacks from the withdrawal of many of its partners. Blockchain technology is poised to become the core technology of the future with deeper integration into IoT systems to improve data traceability and security as well as a growing importance for supply chain management in international trade transactions. Interoperability of platforms remains a challenge to the technology reaching its full potential. While the banking sector has embraced the technology more than others, there is growing evidence of its uptake and benefits in the field of trade to improve supply chain management and oversight.
At International Economics, through our in-house international expertise, we have helped companies adopt the right strategic framework built on strong, resilient, inclusive models. Our extensive experience across Africa and Asia-Pacific, coupled with our solutions using economic and analytics models, have proved to be powerful tools to assist our clients in their expansion into new frontier markets and niche sectors. For more information, please contact our Senior Analytics Manager, Mr Arvind Kureeman at Kureeman@tradeeconomics.com.