In 2018, the Chinese economy suffered a dramatic drop, no matter in which market segments. There are various factors aggravating the real economy: the uncertainty of trade war, the long economic transition period, inadequate economic reform and slowly adjustments of macro policies etc. Downward pressure on Chinese economy will definitely increase in 2019.

 

About the trend of global economic environment of 2019, many experts and institutions have issued their forecasts.

 

 

After last year’s shock, it becomes more difficult for everyone to forecast the global market trend.

 

Now let’s see what can be most probably go wrong when predicting global economy of 2019.

 

 

The Fed’s Interest Rate Hike

 

Since the beginning of 2019, The Fed holds a more cautious attitude towards raising interest rates. The main reason for this attitude is the dramatic changes in the macroeconomic environment.

 

 

 

Although US domestic inflation has reached the target of 2%, if the inflation level still keeps, the Fed is expected to continue the current slow rate hike.

 

What market worries is that the Fed will wrongly predict the trend of core inflation or temporary increase in wages and will raise the federal benchmark interest rate to more than 3% in 2019. This will greatly increase the likelihood of a US economic recession in 2020 and will also have an adverse impact on emerging market countries.

 

 

 

Trade War

 

Trade war has become an important uncertainty in current global economy.

 

According to the IMF's estimates, if the situation goes tough, the trade war may reduce the global economic growth rate by 0.8% in the next two years.

 

Looking back on the trade war between Japan and the United States decades ago. At that time, the trade deficit between them accounted for 50% of the total deficit of the United States, which is even more alarming than the current China-US deficit.

 

 

 

The trade war has escalated from trade issues to a comprehensive confrontation between China and the United States. If the negotiations can resolve the dispute, how much concession will China make? This is also one of the biggest uncertainties in 2019.

 

 

Development of Chinese Economy

 

China’s economic growth fell to 6.6% last year, which was the lowest in 28 years. Many economic experts believe that Chinese economy will continue to decline this year.

 

We believe that domestic tightening policies such as de-leverage in 2018 are indeed the main cause of the slowdown in economic growth. However, after the dollar interest rate hikes, emerging markets often face great risks.

 

In 2019, GDP growth will slow down, but consumption growth will remain relatively stable, and the trend of consumption upgrading will also continue.

 

 

Conclusions

 

Difficulties always accompany with opportunities. Be cautious, be calm, and you can be the one that grasp the market.

 

 

Learn more in AQUMON APP

Reference

Vanguard economic and market outlook for 2019: Down but not out

 

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