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Global Market Review 2019

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Trade dispute between the world’s two largest economies has the global economy holding its breath in anticipation of the outcome.


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Global Market Review

Trade dispute between the world’s two largest economies has the global economy holding its breath in anticipation of the outcome.

Although the deadline has recently been extended, the potential outcome in the current US-China trade dispute continues to cast a shadow over global economic prospects. The IMF has reduced its global growth projection for 2019 by 0.2 percentage points since its projection in October 2018. 

When asked what had changed since October at the World Economic Forum Annual meeting in Davos, Christine Lagarde (Managing Director of the IMF) responded that it is the level of risk and the acceleration of the pace at which risks are materialising.  

The reduction to 3.5% growth in 2019, is largely due to weaker performances in Europe and Asia, specifically relating to trade tariffs between the US and China, and Brexit. However, as Lagarde points out, it is still growth, albeit a little more modest than previously predicted.

US set to break record despite slowdown

The strong performance of the US economy is expected to continue in 2019. The financial results for 2018 were delayed due to the partial government shut down in January, however figures show that significant growth in the first three quarters were balanced by a significant slow-down in the fourth quarter. 

Commentators are expressing the view that the beneficial impact of tax reforms introduced by the Trump administrations are fading. Nevertheless, the economy is in a strong position and the Federal Reserve has indicated that it intends to implement moderate rate hikes in 2019 and 2020, in order to keep the economy from overheating amid rising inflation and a rapid decline in unemployment. If the current expansion in the US economy continues past July 2019, it will have broken the previous record of a decade of expansion, which was set by the tech boom in the 1990s. 

The US appears to be on track for this by avoiding overheating and financial imbalances - the classic causes of recessions. President Trump is determined to follow through on his campaign promise to end unfair practices with trading partners - late in 2018 he reached agreement on the replacement of the NAFTA, now known as the USMCA (United States-Mexico- Canada Agreement). Earlier in 2018, he turned his attention to China, citing unfair trade practices and theft of intellectual property. China then made a counterattack, and hence we have a trade war on our hands. 

China to increase public spending

The Chinese economy, the second largest in the world, is expected to slow down further in 2019. The Government had been implementing a plan to reduce debt and risky lending. However, in response to the trade war, they are switching policy and tending towards a stimulus package of more fiscal spending, reducing the amount of money the bank needs to hold in reserve at the central bank and thus freeing up money for additional lending; building a resilient domestic market and stabilising economic growth and monetary easing in order to enhance growth.

Europe still in flux

In Europe, uncertainty around Brexit still dominates. Business investment and domestic consumption in the UK is likely to remain subdued while the issue of Brexit is unresolved. A no-deal Brexit will likely cause a serious economic shock, while leaving the EU with a deal could result in a boost in investment and consumer sentiment, which has been subdued for the last number of years. Germany, the largest economy in the eurozone, is dealing with a softening of private consumption, and introduction of new automobile fuel emission standards have resulted in a weak industrial production. 

Meanwhile, France is dealing with ‘Gilet Jaunes’ or the ‘Yellow Vest’ movement, and after 10 weeks the protests are finally showing signs of receding. However, what was previously viewed as an unorganised movement is morphing and changing, and the final shape it takes could be of political concern. In Italy, weak domestic demand and higher borrowing costs together with concerns about sovereign and financial risks have dampened domestic demand. 

Ireland is set to see continued strong growth, which will shield it somewhat from the slowdown in the global economy. However, labour shortages, pressure on public services and rising prices caused by this strong growth present major challenges for Government and businesses alike. The outlook is overshadowed by the prospect of a hard Brexit, which would negatively impact on Ireland’s growth, with rural Ireland being particularly impacted. 

The GCC continues to diversify

Oil prices have been volatile thanks to swings in supply, and OPEC has agreed to cut production with a view to returning prices to US$70 a barrel later in 2019. However, the GCC economy continues to improve, with a period of increasing interest rates and the prospect of stable oil prices. In particular, Saudi Arabia continues with its diversification plans as part of its ‘Vision 2030’ plan. And while the geopolitical situation remains a concern, improved economic dynamics are offsetting these concerns. 

The governments continue their drive to reduce the economies’ dependency on oil prices, and thus we have seen a trend of mergers and acquisitions, particularly in the banking sector. These M&As are seen as an opportunity to improve economies of scale and scope, and to improve market share in the global markets. 

The governments are also focusing on continuing to attract foreign direct investment, which is stimulating economic growth and boosting investor confidence in the region. The UAE has made some significant investments in technology, and in particular renewable energy, with the ambition to have 44% of its energy requirements provided through renewable resources by 2050. 

Its investment in infrastructure continues, as it prepares for Expo 2020, which is providing a stimulus for the regional construction industry. While FDI investment in the UAE is expected to significantly increase with recent investment law provisions, relaxation of visa rules and other business-friendly reforms also appear poised to both attract qualified foreign workers. However, Egypt is expected to be the region’s top performer in 2019, followed by Iraq. Iran will contract again in 2019 as US sanctions continue.

In Israel domestic demand should continue to support economic growth this year. Private consumption will likely benefit from a lower tax burden and still-favourable financial conditions. New gas and oil-related projects are expected to boost fixed investment growth. On the other hand, regional tensions remain a key downside risk and cloud the outlook. 

Asia Pacific remains robust

A recent press release by the Singapore’s Ministry of Trade and Investment noted that its economy is, like many other global economies, expected to slow in 2019. The manufacturing sector, in particular electronics and precision engineering, is experiencing difficulties due to weakening global demand for semiconductors and associated equipment. While other sectors, such as wholesale trade, transportation and storage finance and insurance are expecting to moderate in growth, in line with the global economy. The information and communications, health and social services sectors are expected to remain resilient due to demand for IT and digital solutions. The construction industry is expected to see a pick-up after three consecutive years of contraction. Politically, there is speculation that general elections will be held this year to take advantage of the still-strong domestic growth and heightened public morale following bicentennial commemorations.

Remarkably, the Australian economy has gone 27 years without a recession. While there are risks to the economy, it is expected that business investment, rising exports of commodities and Government spending will likely offset the contracting housing sector, subdued consumer spending and devastating drought. 

Employment growth is strong, as the Australians consistently add more jobs than needed to accommodate the growth of the working-age population, resulting in reduced unemployment rates and participation rates increasing to the highest level on record. In addition to increased production capacity from LNG plants, the Australian resource sector is also seeing increased activity from the Chinese in response to the US tariffs, in iron ore and coal particularly, though this cannot be relied upon in the longer term. Thus, growth in 2019 should be moderate.

Contributors: Kim Hegarty

Global growth projections

GDP growth from global review

Level of economic activity

Level of economic activity

Market size of top global construction markets

Market size of global construction markets

Investments needs and economic infrastructure

Investment needs and economic infrastructure

Average global economic infrastructure annual need, 2017–2035

Average global economic infrastructure annual need

Share of construction spending by region 2020

Share of construction spending by region

Global growth forecasts for 2018 and 2019

Global growth forecast 2018 2019

Global inflation 2013–2019*

Global inflation sept 18

Oil production and consumption statistics*

World oils supply and demand sept 18

Carrying out business throughout the world

Ease of doing business

Index of international construction costs at January 2019

Index of international construction costs 2019

Top 20 international contractors*

Top global contractors

Top 20 international design firms*

Top global design firms

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