Daily Commentary BY THE CURVE TEAM –

Geopolitical Uncertainty Overshadows Real Risk to the Global Economy

15th of March, 2019

Geopolitical uncertainty continues to grow which is taking the focus off the real issues facing the global economy at present.

Politicians in UK continue to play games rather than act like adults and resolve the brexit mess. There were more votes on amendments of amendments with no meaningful outcome to note. Another referendum now seems unlikely so they now have very few options left. Unless they decide to seek an extension, the current agreement will need to be accepted or they will crash out of the Eurozone in two weeks time.

The trade war between the US and China is no closer to being resolved and if anything, comments over the past 24 hours suggest a deal further away than all the recent positive comments suggest. After Trump said he was in no rush to make a deal, the Chinese have announced that President Xi will no longer travel to meet with the US President this month. The meeting is now expected to take place in April.

Trump was also fighting another battle at home with his Boarder Emergency Declaration being voted down in the Senate. Trump said he plans to veto the decision.

The ongoing  geopolitical uncertainty hanging over the global outlook is overshadowing the more bigger concerns that is the slowdown in global growth. The fact that the global economy is slowing so suddenly should be of great concern.

Disruptions to trade due to trade negotiations are being touted as the main driver and there is an expectation that once things are resolved then trade flows will resume. Rather, what the sudden drop in activity shows is that all is not well in the global economy.

Following the GFC, the global economy was thrown on life support via ultra low rates and quantitative easing. Rather than address the core issue at the time, which was that the GFC was caused by a credit bubble, these policies have simply added to the underlying issued: debt.

The globe is now more indebted that ever and the small tightening in global financial conditions over the past 12 months has had an profound effect. So much so that central banks have had walk back from their desires to normalise monetary policy as witness by recent rhetoric shifts from the European Central Bank and US Federal Reserve.

So while all the focus is on the headline grabbing generated by geopolitical posturing, the underlying problem continues to fester away.

David Flanagan

Director - Interest Rate Markets