Now that the new school year has started, it is interesting to see what were the main concerns that economists had at the beginning of the year and to analyze their evolution. The main fears were:
- An increase in rates by the FED: In December 2018 the rates were between 2.25% and 2.5%, in June they were maintained and currently the consensus of analysts is betting on a potential reduction in the rate. next September.
- Slowdown by the Chinese Economy: The Chinese economy grew 6.2% in the second quarter of 2019, the slowest pace in almost three decades, representing the lowest rate since quarterly data began to be published in 1992. (eg in 2010 was 10.6).
- China-US trade conflict: On August 23, at the gates of the G7 summit, the Chinese government announced tariffs of up to 10% on imports worth USD 75,000 million from the US, to which Donald Trump responded with two other increases of tariffs on Chinese products.
Shortly before, the US president had already increased tensions by announcing that he was asking US companies to evaluate an alternative to producing in China that includes the transfer of production to their country of origin.
In the final declaration of the summit, on August 26, the G7 declares itself committed to open and fair world trade and the stability of the world economy.
The G7 wants to profoundly change the World Trade Organization (WTO) to make it more effective in protecting intellectual property, settling disputes, and eliminating unfair trade practices. The G7 is committed to finding an agreement in 2020 to simplify regulatory barriers and modernize international taxation within the framework of the OECD, of which China is not a part.
- Eurozone slowdown: Growth in the 19 in Q2 2019 was 0.2%, half that of the first quarter of the year, adding to this point a downward inflation of 1.1%. Regarding the second half of the year, the indicators point to low confidence in the industrial sector, a deterioration in the foreign engine and a possible channeling of wage increases towards savings instead of consumption, which would weaken domestic demand.
- A hard Brexit, which would imply that the United Kingdom is left without an agreement to leave the EU: Boris Johnson became Prime Minister of the United Kingdom on July 24 and since then he has been pressing to eliminate the Irish backstop (once Brexit materialize, the border between Ireland and Northern Ireland would become a real border, which would pose a serious problem both in terms of trade and the Good Friday Agreements, signed in Belfast in 1998, which put an end to the Irish conflict and which contemplates as a condition the absence of physical borders on the island), in addition to threatening to reduce by 32,000 million Pounds the amount to be paid to the EU for a no-deal Brexit on October 31st.
- Drop in the price of oil due to an excess of world supply: In August the average price of a barrel of OPEC crude oil as of today of USD 59.67 compared to 64.71 in July, which represents 7.79 % decline. In the last twelve months the price of a barrel of OPEC oil has fallen by 17.45%. Reviewing the history of the OPEC crude oil price since 2003, we see that it reached its maximum price, USD 131.22, in July 2008 and its minimum price, USD 25.24 in April 2003.
In other words, faced with a panorama with as many lights as shadows, the two heads of monetary policy at the OECD, Jerome Powell, president of the US Federal Reserve (Fed) and Mario Draghi of the European Central Bank (ECB) still have tools to ensure that the end of the current expansionary cycle is delayed. In short, it is in their hands that the “end of cycle” becomes a “cycle that is in its final phase”, two situations that Joachim Fels, the renowned global economic adviser at Pimco, has differentiated.
