Five Risks Facing the Global Economy in the Second Half of 2019

So far this year, the global economy has performed better than many economists had expected, with many of the world’s largest economies growing at a faster rate in the early part of this year than had been predicted.  In fact, many of the biggest fears for 2019 have thus far not come to pass.  For example, for all of the concerns surrounding a potential trade war between the world’s two largest economies, the US and China have thus far avoided a full-blown trade war.  Likewise, fears of a major market correction have also not been realized so far this year, with markets around the world remaining relatively strong.

Despite a relatively strong first part of the year, there are a number of major risks facing the global economy at the moment that could lead to a major economic slowdown in the second half of this year.  In fact, many of these risks were already in place in the first half of this year, but failed to be realized.  Here are five of the leading risks facing the global economy in the second half of this year, each of which has the potential to have a dramatic impact on the health of the global economy. 

• A Downturn in Sync: Heading into this year, we predicted that 12 of the world’s 14 largest economies (including the US, EU and China) would grow at a slower pace in 2019 than they did in 2018. In fact, such a “downturn in sync” has not occurred since 2009, during the height of the global financial crisis. Despite some better-than-expected growth results in the first quarter of this year, this prediction holds true and it appears that at least 12 of the world’s 14 largest economies will in fact experience a slowdown this year.  

• A US-China Trade War: Despite the current truce in the trade dispute between the United States and China, there are fears that a new round of tit-for-tat tariffs between the world’s two largest economies could break out in the second half of this year.  With global growth slowing, a major escalation in this trade dispute could be the event that turns a slowdown into a rout, with growth rates falling precipitously around the world.  Worse, such a dispute could lead to protectionist measures being implemented in more countries, further weakening global trade.

• A Fall in Consumer Confidence: While business and investor confidence has waned in many of the world’s leading economies over the past year, consumer confidence remained strong, allowing consumer spending growth to continue.  In fact, this has been the catalyst for much of the growth in many of the world’s largest economies so far this year.  However, there are worrying signs that consumer confidence is slipping, and should this result in a major decline in consumer spending growth, the global economy is in for a very difficult period.

• European Concerns: Europe’s economy entered 2019 on the back foot following a slowdown in the second half of last year, but results from the first quarter boosted hopes for a better 2019. However, recent economic data from many of Europe’s leading economies suggests that growth will be sluggish at best across much of Europe over the remainder of this year.  Worse, many European economies, most notably Germany, are highly vulnerable to the effects of a global trade war and falling demand in key export markets such as China.

• More Emerging Market Troubles: For the past few years, many of the world’s most important emerging markets outside of Asia have bounced from crisis to crisis, with little economic growth being generated in key emerging markets in regions such as Latin America and the Middle East.  Now, not only are many of those emerging markets that have struggled of late facing new problems (such as Brazil, Russia and Mexico), but there are signs that many of Asia’s most important emerging markets are growing at a slower pace than in previous years.

Undoubtedly, there are many other risks faced by the global economy in the second half of this year, ranging from uncertainty over the direction on interest rates in major economies to the threat of a global currency war.  The point is that, the level of risk facing the global economy is on the rise, and this is quite worrying.  Despite all of the changes that have taken place in recent years, the global economy has remained, as a whole, remarkably steady, having recorded economic growth rates of between 3.3% and 3.8% each year between 2012 and 2018, a remarkably steady period of growth.  However, some of the risks facing the global economy today have the potential to severely reduce the overall rate of growth in the world, a dangerous development considering how little ammunition many leading economies have to combat a severe downturn.  As such, it is imperative that policymakers in the world’s leading economies do everything they can to mitigate these risks before they lead to a severe economic crisis.